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Readers hoping to buy OC Oerlikon Corporation AG (VTX:OERL) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, OC Oerlikon investors that purchase the stock on or after the 23rd of March will not receive the dividend, which will be paid on the 27th of March.
The company's next dividend payment will be CHF0.35 per share, and in the last 12 months, the company paid a total of CHF0.35 per share. Looking at the last 12 months of distributions, OC Oerlikon has a trailing yield of approximately 6.6% on its current stock price of CHF5.29. If you buy this business for its dividend, you should have an idea of whether OC Oerlikon'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.
Check out our latest analysis for OC Oerlikon
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. OC Oerlikon distributed an unsustainably high 128% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. A useful secondary check can be to evaluate whether OC Oerlikon generated enough free cash flow to afford its dividend. OC Oerlikon paid out more free cash flow than it generated - 115%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.
As OC Oerlikon's dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we're not overly excited about OC Oerlikon's flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. With limited earnings growth and paying out a concerningly high percentage of its earnings, the prospects of future dividend growth don't look so bright here.