The board of Organon & Co. (NYSE:OGN) has announced that it will pay a dividend on the 15th of September, with investors receiving $0.28 per share. This means the annual payment is 3.6% of the current stock price, which is above the average for the industry.
Organon's Dividend Is Well Covered By Earnings
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. However, Organon's earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.
Over the next year, EPS is forecast to expand by 26.9%. Assuming the dividend continues along recent trends, we think the payout ratio could be 20% by next year, which is in a pretty sustainable range.
Organon Doesn't Have A Long Payment History
It's not possible for us to make a backward looking judgement just based on a short payment history. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.
Dividend Growth Potential Is Shaky
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, initial appearances might be deceiving. EPS has fallen over the last year, with this year's number 34% below last year. Such a large drop can indicate that the business has run into some trouble and might end up in the dividend having to be reduced. However, we would never make any decisions based on only a single year of data, especially when assessing long term dividend potential.
Our Thoughts On Organon's Dividend
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Organon's payments, as there could be some issues with sustaining them into the future. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don't think Organon is a great stock to add to your portfolio if income is your focus.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 3 warning signs for Organon (2 are concerning!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
What are the risks and opportunities for Organon?
Trading at 78.1% below our estimate of its fair value
Earnings are forecast to grow 7.85% per year
Debt is not well covered by operating cash flow
Negative shareholders equity
Profit margins (16.1%) are lower than last year (24.2%)
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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.
Organon & Co., a health care company, develops and delivers health solutions through a portfolio of prescription therapies in the United States and internationally.
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Undervalued second-rate dividend payer.