Be Sure To Check Out Ocean Bio-Chem, Inc. (NASDAQ:OBCI) Before It Goes Ex-Dividend

Ocean Bio-Chem, Inc. (NASDAQ:OBCI) is about to trade ex-dividend in the next four days. If you purchase the stock on or after the 10th of March, you won't be eligible to receive this dividend, when it is paid on the 25th of March.

Ocean Bio-Chem's next dividend payment will be US$0.03 per share. Last year, in total, the company distributed US$0.08 to shareholders. Based on the last year's worth of payments, Ocean Bio-Chem stock has a trailing yield of around 1.1% on the current share price of $10.69. 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 check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Ocean Bio-Chem

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. Ocean Bio-Chem has a low and conservative payout ratio of just 4.0% 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. The good news is it paid out just 9.5% of its free cash flow in the last year.

It's positive to see that Ocean Bio-Chem'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 how much of its profit Ocean Bio-Chem paid out over the last 12 months.

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. It's encouraging to see Ocean Bio-Chem has grown its earnings rapidly, up 34% a year for the past five years. Ocean Bio-Chem earnings per share have been sprinting ahead like the Road Runner at a track and field day; scarcely stopping even for a cheeky "beep-beep". We also like that it is reinvesting most of its profits in its business.'

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past four years, Ocean Bio-Chem has increased its dividend at approximately 19% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

Should investors buy Ocean Bio-Chem for the upcoming dividend? It's great that Ocean Bio-Chem is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. It's a promising combination that should mark this company worthy of closer attention.

In light of that, while Ocean Bio-Chem has an appealing dividend, it's worth knowing the risks involved with this stock. Every company has risks, and we've spotted 2 warning signs for Ocean Bio-Chem you should know about.

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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