Ocean Bio-Chem's (NASDAQ:OBCI) Dividend Will Be US$0.03

By
Simply Wall St
Published
November 25, 2021
NasdaqCM:OBCI
Source: Shutterstock

Ocean Bio-Chem, Inc. (NASDAQ:OBCI) will pay a dividend of US$0.03 on the 21st of December. This means the annual payment will be 1.2% of the current stock price, which is lower than the industry average.

See our latest analysis for Ocean Bio-Chem

Ocean Bio-Chem's Payment Has Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. Ocean Bio-Chem is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Over the next year, EPS could expand by 36.9% if recent trends continue. If the dividend continues on this path, the payout ratio could be 9.6% by next year, which we think can be pretty sustainable going forward.

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NasdaqCM:OBCI Historic Dividend November 26th 2021

Ocean Bio-Chem's Dividend Has Lacked Consistency

It's comforting to see that Ocean Bio-Chem has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2016, the first annual payment was US$0.06, compared to the most recent full-year payment of US$0.12. This implies that the company grew its distributions at a yearly rate of about 15% over that duration. Ocean Bio-Chem has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Ocean Bio-Chem has impressed us by growing EPS at 37% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While Ocean Bio-Chem is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Ocean Bio-Chem has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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