Oil-Dri Corporation of America (NYSE:ODC) stock is about to trade ex-dividend in 2 days time. You can purchase shares before the 15th of August in order to receive the dividend, which the company will pay on the 30th of August.
Oil-Dri of America’s next dividend payment will be US$0.25 per share, on the back of last year when the company paid a total of US$0.96 to shareholders. Looking at the last 12 months of distributions, Oil-Dri of America has a trailing yield of approximately 3.1% on its current stock price of $32.69. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Oil-Dri of America has been able to grow its dividends, or if the dividend might be cut.
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. Oil-Dri of America paid out 62% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether Oil-Dri of America generated enough free cash flow to afford its dividend. Over the last year, it paid out more than three-quarters (77%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
It’s positive to see that Oil-Dri of America’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.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Oil-Dri of America’s earnings per share have fallen at approximately 5.8% a year over the previous 5 years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. Oil-Dri of America has delivered an average of 6.0% per year annual increase in its dividend, based on the past 10 years of dividend payments. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it’s always worth checking for when the company can’t increase the payout ratio any more – because then the music stops.
Is Oil-Dri of America an attractive dividend stock, or better left on the shelf? It’s never good to see earnings per share shrinking, but at least the dividend payout ratios appear reasonable. We’re aware though that if earnings continue to decline, the dividend could be at risk. Bottom line: Oil-Dri of America has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
Want to learn more about Oil-Dri of America? Here’s a visualisation of its historical rate of revenue and earnings growth.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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