Should You Buy Oshkosh Corporation (NYSE:OSK) For Its Upcoming Dividend?

Oshkosh Corporation (NYSE:OSK) stock is about to trade ex-dividend in three days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase Oshkosh's shares on or after the 14th of February will not receive the dividend, which will be paid on the 29th of February.

The company's next dividend payment will be US$0.46 per share, and in the last 12 months, the company paid a total of US$1.84 per share. Looking at the last 12 months of distributions, Oshkosh has a trailing yield of approximately 1.6% on its current stock price of US$111.89. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Oshkosh can afford its dividend, and if the dividend could grow.

See our latest analysis for Oshkosh

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Oshkosh has a low and conservative payout ratio of just 18% of its income after tax. A useful secondary check can be to evaluate whether Oshkosh generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 39% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that Oshkosh'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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Oshkosh earnings per share are up 5.0% per annum over the last five years. Recent growth has not been impressive. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Oshkosh has delivered 12% dividend growth per year on average over the past 10 years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

Has Oshkosh got what it takes to maintain its dividend payments? Earnings per share growth has been growing somewhat, and Oshkosh 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. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Oshkosh is halfway there. There's a lot to like about Oshkosh, and we would prioritise taking a closer look at it.

Ever wonder what the future holds for Oshkosh? See what the 16 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.