Do These 3 Checks Before Buying Old Mutual Limited (JSE:OMU) For Its Upcoming Dividend

It looks like Old Mutual Limited (JSE:OMU) is about to go ex-dividend in the next 3 days. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Accordingly, Old Mutual investors that purchase the stock on or after the 1st of October will not receive the dividend, which will be paid on the 6th of October.

The company's next dividend payment will be R00.37 per share, and in the last 12 months, the company paid a total of R0.86 per share. Looking at the last 12 months of distributions, Old Mutual has a trailing yield of approximately 6.4% on its current stock price of R013.41. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Old Mutual has been able to grow its dividends, or if the dividend might be cut.

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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. Old Mutual is paying out an acceptable 59% of its profit, a common payout level among most companies.

When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.

See our latest analysis for Old Mutual

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

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Readers will understand then, why we're concerned to see Old Mutual's earnings per share have dropped 5.8% a year over the past five 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. Old Mutual has seen its dividend decline 5.6% per annum on average over the past 10 years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

To Sum It Up

From a dividend perspective, should investors buy or avoid Old Mutual? We're not overly enthused to see Old Mutual's earnings in retreat at the same time as the company is paying out more than half of its earnings as dividends to shareholders. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.

So if you're still interested in Old Mutual despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For example, we've found 1 warning sign for Old Mutual that we recommend you consider before investing in the business.

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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.