Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Ocean Bio-Chem Inc (NASDAQ:OBCI) has paid a dividend to shareholders in the last few years. It currently yields 1.5%. Does Ocean Bio-Chem tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
5 questions to ask before buying a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Does it pay an annual yield higher than 75% of dividend payers?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has dividend per share amount increased over the past?
- Can it afford to pay the current rate of dividends from its earnings?
- Will the company be able to keep paying dividend based on the future earnings growth?
Does Ocean Bio-Chem pass our checks?
The current payout ratio for OBCI is negative, meaning that the company is not yet profitable and is paying dividend by dipping into its retained earnings.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. Unfortunately, it is really too early to view Ocean Bio-Chem as a dividend investment. It has only been consistently paying dividends for 2 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Compared to its peers, Ocean Bio-Chem has a yield of 1.5%, which is on the low-side for Household Products stocks.
Now you know to keep in mind the reason why investors should be careful investing in Ocean Bio-Chem for the dividend. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. Below, I’ve compiled three relevant factors you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for OBCI’s future growth? Take a look at our free research report of analyst consensus for OBCI’s outlook.
- Historical Performance: What has OBCI’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.