Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Ocean Wilsons Holdings Limited (LON:OCN) is about to go ex-dividend in just 4 days. This means that investors who purchase shares on or after the 7th of May will not receive the dividend, which will be paid on the 5th of June.
Ocean Wilsons Holdings's next dividend payment will be UK£0.30 per share, on the back of last year when the company paid a total of UK£0.30 to shareholders. Calculating the last year's worth of payments shows that Ocean Wilsons Holdings has a trailing yield of 3.6% on the current share price of £6.65. 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 Ocean Wilsons Holdings can afford its dividend, and if the dividend could grow.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Ocean Wilsons Holdings is paying out just 23% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Ocean Wilsons Holdings generated enough free cash flow to afford its dividend. Ocean Wilsons Holdings paid out more free cash flow than it generated - 130%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
Ocean Wilsons Holdings does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.
Ocean Wilsons Holdings paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Ocean Wilsons Holdings's ability to maintain its dividend.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Ocean Wilsons Holdings's earnings per share have been growing at 15% a year for the past five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. It looks like the Ocean Wilsons Holdings dividends are largely the same as they were ten years ago.
To Sum It Up
Has Ocean Wilsons Holdings got what it takes to maintain its dividend payments? We like that Ocean Wilsons Holdings has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. In summary, it's hard to get excited about Ocean Wilsons Holdings from a dividend perspective.
In light of that, while Ocean Wilsons Holdings has an appealing dividend, it's worth knowing the risks involved with this stock. To help with this, we've discovered 4 warning signs for Ocean Wilsons Holdings that you should be aware of before investing in their shares.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned.
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