Oil-Dri Corporation of America (NYSE:ODC) stock is about to trade ex-dividend in four days. Investors can purchase shares before the 13th of August in order to be eligible for this dividend, which will be paid on the 28th of August.
Oil-Dri Corporation of America's next dividend payment will be US$0.26 per share. Last year, in total, the company distributed US$1.04 to shareholders. Looking at the last 12 months of distributions, Oil-Dri Corporation of America has a trailing yield of approximately 2.9% on its current stock price of $35.25. 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! So we need to investigate whether Oil-Dri Corporation of America can afford its dividend, and if the dividend could grow.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Fortunately Oil-Dri Corporation of America's payout ratio is modest, at just 45% of profit. 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. Thankfully its dividend payments took up just 39% of the free cash flow it generated, which is a comfortable payout ratio.
It's positive to see that Oil-Dri Corporation of America'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 usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, Oil-Dri Corporation of America's earnings per share have been growing at 14% a year for the past five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Oil-Dri Corporation of America has increased its dividend at approximately 5.7% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Oil-Dri Corporation of America is keeping back more of its profits to grow the business.
To Sum It Up
Is Oil-Dri Corporation of America an attractive dividend stock, or better left on the shelf? Oil-Dri Corporation of America has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Overall we think this is an attractive combination and worthy of further research.
Want to learn more about Oil-Dri Corporation of America's dividend performance? Check out this visualisation of its historical revenue and earnings growth.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
This article by Simply Wall St is general in nature. 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.
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