There's A Lot To Like About Orient Abrasives' (NSE:ORIENTABRA) Upcoming ₹0.15 Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Orient Abrasives Limited (NSE:ORIENTABRA) is about to go ex-dividend in just 3 days. Ex-dividend means that investors that purchase the stock on or after the 25th of November will not receive this dividend, which will be paid on the 2nd of January.

Orient Abrasives's upcoming dividend is ₹0.15 a share, following on from the last 12 months, when the company distributed a total of ₹0.15 per share to shareholders. Calculating the last year's worth of payments shows that Orient Abrasives has a trailing yield of 0.7% on the current share price of ₹21.1. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Orient Abrasives

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Orient Abrasives has a low and conservative payout ratio of just 13% of its income after tax. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend.

Click here to see how much of its profit Orient Abrasives paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's not encouraging to see that Orient Abrasives's earnings are effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share. Growth has been anaemic. Yet with more than 75% of its earnings being kept in the business, there is ample room to reinvest in growth or lift the payout ratio - either of which could increase the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Orient Abrasives's dividend payments per share have declined at 17% per year on average over the past 10 years, which is uninspiring.

The Bottom Line

Is Orient Abrasives an attractive dividend stock, or better left on the shelf? Earnings per share have been flat over this time, but we're intrigued to see that Orient Abrasives is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. Generally we like to see both low payout ratios and strong earnings per share growth, but Orient Abrasives is halfway there. There's a lot to like about Orient Abrasives, and we would prioritise taking a closer look at it.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Our analysis shows 3 warning signs for Orient Abrasives and you should be aware of them before buying any shares.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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