Why You Might Be Interested In Odfjell Technology Ltd. (OB:OTL) For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Odfjell Technology Ltd. (OB:OTL) is about to trade ex-dividend in the next 3 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Meaning, you will need to purchase Odfjell Technology's shares before the 29th of August to receive the dividend, which will be paid on the 12th of September.

The company's next dividend payment will be kr01.14 per share. Last year, in total, the company distributed kr3.56 to shareholders. Based on the last year's worth of payments, Odfjell Technology has a trailing yield of 8.5% on the current stock price of kr053.50. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Odfjell Technology

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. Odfjell Technology has a low and conservative payout ratio of just 21% of its income after tax. A useful secondary check can be to evaluate whether Odfjell Technology generated enough free cash flow to afford its dividend. Fortunately, it paid out only 28% of its free cash flow in the past year.

It's positive to see that Odfjell Technology's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For that reason, it's encouraging to see Odfjell Technology's earnings over the past year have risen 31%. While we'd be remiss not to point out that a year is a very short time in dividend investing, it's an encouraging sign so far. Odfjell Technology is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.

One year is a very short time frame in the pantheon of investing, so we wouldn't get too hung up on these numbers.

Given that Odfjell Technology has only been paying a dividend for a year, there's not much of a past history to draw insight from.

Final Takeaway

Is Odfjell Technology an attractive dividend stock, or better left on the shelf? We love that Odfjell Technology is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. Overall we think this is an attractive combination and worthy of further research.

While it's tempting to invest in Odfjell Technology for the dividends alone, you should always be mindful of the risks involved. In terms of investment risks, we've identified 2 warning signs with Odfjell Technology and understanding them should be part of your investment process.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.