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It looks like Oil-Dri Corporation of America (NYSE:ODC) is about to go ex-dividend in the next four days. This means that investors who purchase shares on or after the 11th of February will not receive the dividend, which will be paid on the 26th of February.
Oil-Dri Corporation of America's next dividend payment will be US$0.26 per share, and in the last 12 months, the company paid a total of US$1.04 per share. Calculating the last year's worth of payments shows that Oil-Dri Corporation of America has a trailing yield of 2.9% on the current share price of $36.2. 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! We need to see whether the dividend is covered by earnings and if it's growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Oil-Dri Corporation of America paying out a modest 40% of its earnings. 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. Fortunately, it paid out only 39% of its free cash flow in the past year.
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Oil-Dri Corporation of America earnings per share are up 9.8% per annum over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Oil-Dri Corporation of America has lifted its dividend by approximately 5.7% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
To Sum It Up
Should investors buy Oil-Dri Corporation of America for the upcoming dividend? Earnings per share growth has been growing somewhat, and Oil-Dri Corporation of America is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but Oil-Dri Corporation of America is being conservative with its dividend payouts and could still perform reasonably over the long run. There's a lot to like about Oil-Dri Corporation of America, and we would prioritise taking a closer look at it.
In light of that, while Oil-Dri Corporation of America has an appealing dividend, it's worth knowing the risks involved with this stock. In terms of investment risks, we've identified 1 warning sign with Oil-Dri Corporation of America and understanding them should be part of your investment process.
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.
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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