We Wouldn't Be Too Quick To Buy Octopus Renewables Infrastructure Trust plc (LON:ORIT) Before It Goes Ex-Dividend

Readers hoping to buy Octopus Renewables Infrastructure Trust plc (LON:ORIT) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Thus, you can purchase Octopus Renewables Infrastructure Trust's shares before the 8th of February in order to receive the dividend, which the company will pay on the 23rd of February.

The company's upcoming dividend is UK£0.0145 a share, following on from the last 12 months, when the company distributed a total of UK£0.058 per share to shareholders. Last year's total dividend payments show that Octopus Renewables Infrastructure Trust has a trailing yield of 7.0% on the current share price of UK£0.83. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether Octopus Renewables Infrastructure Trust can afford its dividend, and if the dividend could grow.

See our latest analysis for Octopus Renewables Infrastructure Trust

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Last year, Octopus Renewables Infrastructure Trust paid out 281% of its profit to shareholders in the form of dividends. This is not sustainable behaviour and requires a closer look on behalf of the purchaser.

Generally, the higher a company's payout ratio, the more the dividend is at risk of being reduced.

Click here to see how much of its profit Octopus Renewables Infrastructure Trust paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. From this perspective it's somewhat discouraging that earnings per share are down 2.3% but we'd note that investment in future growth can cause a similar impact.

We'd also point out that Octopus Renewables Infrastructure Trust issued a meaningful number of new shares in the past year. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, three years ago, Octopus Renewables Infrastructure Trust has lifted its dividend by approximately 11% a year on average. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Octopus Renewables Infrastructure Trust is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.

The Bottom Line

Should investors buy Octopus Renewables Infrastructure Trust for the upcoming dividend? Earnings per share are in decline and Octopus Renewables Infrastructure Trust is paying out what we feel is an uncomfortably high percentage of its profit as dividends. It's not that we hate the business, but we feel that these characeristics are not desirable for investors seeking a reliable dividend stock to own for the long term. Octopus Renewables Infrastructure Trust doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.

So if you're still interested in Octopus Renewables Infrastructure Trust despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For example, we've found 3 warning signs for Octopus Renewables Infrastructure Trust (2 can't be ignored!) that deserve your attention before investing in the shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.