Oil-Dri Corporation of America (NYSE:ODC) Is Increasing Its Dividend To US$0.28

Oil-Dri Corporation of America's (NYSE:ODC) dividend will be increasing to US$0.28 on 26th of August. This makes the dividend yield 4.0%, which is above the industry average.

See our latest analysis for Oil-Dri Corporation of America

Oil-Dri Corporation of America Doesn't Earn Enough To Cover Its Payments

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, earnings were actually smaller than the dividend, and the company was actually spending more cash than it was making. Paying out such a large dividend compared to earnings while also not generating any free cash flow would definitely be difficult to keep up.

EPS is set to fall by 41.0% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could reach 1,346%, which could put the dividend in jeopardy if the company's earnings don't improve.

Oil-Dri Corporation of America Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2012, the first annual payment was US$0.68, compared to the most recent full-year payment of US$1.08. This means that it has been growing its distributions at 4.7% per annum over that time. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

The Dividend Has Limited Growth Potential

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Let's not jump to conclusions as things might not be as good as they appear on the surface. Earnings per share has been sinking by 41% over the last five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.

The Dividend Could Prove To Be Unreliable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. Although they have been consistent in the past, we think the payments are a little high to be sustained. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 3 warning signs for Oil-Dri Corporation of America (of which 1 is potentially serious!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of 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.