Over the past 10 years Olin Corporation (NYSE:OLN) has been paying dividends to shareholders. The company is currently worth US$3.1b, and now yields roughly 4.3%. Should it have a place in your portfolio? Let’s take a look at Olin in more detail.
5 questions to ask before buying a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Is their annual yield among the top 25% of dividend payers?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has it increased its dividend per share amount over the past?
- Does earnings amply cover its dividend payments?
- Will it be able to continue to payout at the current rate in the future?
Does Olin pass our checks?
The company currently pays out 17% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect OLN’s payout to increase to 33% of its earnings. Assuming a constant share price, this equates to a dividend yield of 4.3%. However, EPS is forecasted to fall to $2.18 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. OLN investors will be well aware the dividend payments are lower today than they were 10 years ago, although the payments have at least been steady. However, income investors that value stability over growth may still find OLN appealing.
In terms of its peers, Olin generates a yield of 4.3%, which is high for Chemicals stocks.
Taking into account the dividend metrics, Olin ticks most of the boxes as a strong dividend investment, putting it in my list of top dividend payers. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. There are three fundamental aspects you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for OLN’s future growth? Take a look at our free research report of analyst consensus for OLN’s outlook.
- Valuation: What is OLN worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether OLN is currently mispriced by the market.
- Other 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.