Regular readers will know that we at Simply Wall St take a big interest in dividends, which is why it's exciting to see that Odfjell Technology Ltd. (OB:OTL) is hitting its ex-date in the next three days. The ex-date is typically one business day before the record date, which is the date a company determines which shareholders are eligible to receive a dividend. The ex-date is an important date to pay attention to because buying shares after this date may result in a delayed settlement that isn't reflected on the record date. This means that to receive the dividend paid on September 12th, you would need to buy Odfjell Technology shares by August 29th.
The company's next dividend will be 1.14 kr per share. Last year, the company distributed a total of 3.56 kr to shareholders. Based on last year's dividends, Odfjell Technology's current share price of 53.50 kr represents a historical yield of 8.5%. Dividends are an important source of income for many shareholders, but the health of a business is essential to sustaining a dividend. We need to check whether the dividend is covered by profits and if it is growing.
Check out our latest analysis for Odfjell Technology
Dividends are typically paid out of company income, so if a company's dividend exceeds its profits, there is a higher risk that its dividend will be cut. Odfjell Technology has a low and conservative dividend payout ratio of just 21% of its after-tax earnings. The second useful check is to evaluate whether Odfjell Technology generated enough free cash flow to pay its dividend. Happily, the company paid out only 28% of its free cash flow in the past year.
It's good to see that Odfjell Technology'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 suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's dividend payout ratio, plus analyst estimates of its future dividends.
OB:OTL Historical Dividend August 25, 2024
Are profits and dividends increasing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as it is easier to grow dividends. Investors love dividends, so if earnings fall and the dividend is cut, you would expect a heavy sell-off in the stock at the same time. That's why it's encouraging to see Odfjell Technology's earnings have increased by 31% over the past year. It's hard not to point out that a year is a very short time for dividend investing, but so far it's an encouraging sign. Odfjell Technology pays out less than half of its earnings and cash flow, yet at the same time, its earnings per share have grown rapidly. Companies with growing earnings but low dividend payout ratios often make the best long-term dividend stocks, because companies can increase their earnings while simultaneously increasing the percentage of their profits they pay out, effectively growing the dividend.
A year is a very short period in the investing world, so don't get too hung up on these numbers.
Odfjell Technology has only been paying a dividend for a year, so there isn't much past history from which to draw insights.
Final conclusion
Is Odfjell Technology an attractive dividend stock, or is it better left on the shelf? Odfjell Technology is attractive because it has grown earnings per share while maintaining a low payout ratio of both its earnings and cash flow. These characteristics suggest that the company is reinvesting in expanding its business, and the conservative payout ratio also means that there is low risk that the dividend will be cut in the future. Overall, we think this is an attractive combination and one that is worth investigating further.
Investing in Odfjell Technology solely for the dividends can be tempting, but you should always be mindful of the risks involved. In terms of investment risks, we've found that Odfjell Technology has 2 warning signs, and understanding these should be part of your investment process.
A common mistake in investing is buying the first interesting stock you see. Here you can find the complete list of high dividend stocks.
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This article by Simply Wall St is of general nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology, and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks, and does not take into account your objectives or financial situation. We aim to provide long-term analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned herein.
