Should You Buy Opera Limited (NASDAQ:OPRA) For Its Upcoming Dividend?

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Opera Limited (NASDAQ:OPRA) is about to trade ex-dividend in the next four days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, Opera investors that purchase the stock on or after the 8th of July will not receive the dividend, which will be paid on the 15th of July.

The company's next dividend payment will be US$0.39 per share, and in the last 12 months, the company paid a total of US$0.80 per share. Last year's total dividend payments show that Opera has a trailing yield of 4.0% on the current share price of US$20.08. If you buy this business for its dividend, you should have an idea of whether Opera's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

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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. It paid out 84% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be concerned if earnings began to decline. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year, it paid out more than three-quarters (81%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Check out our latest analysis for Opera

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Opera's earnings have been skyrocketing, up 21% per annum for the past five years. The company is paying out more than three-quarters of its earnings, but it is also generating strong earnings growth.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Opera's dividend payments are broadly unchanged compared to where they were two years ago.

To Sum It Up

From a dividend perspective, should investors buy or avoid Opera? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. However, we'd also note that Opera is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. In summary, while it has some positive characteristics, we're not inclined to race out and buy Opera today.

On that note, you'll want to research what risks Opera is facing. Case in point: We've spotted 2 warning signs for Opera you should be aware of.

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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.