Orora (ASX:ORA) Has Announced That It Will Be Increasing Its Dividend To AU$0.075
Orora Limited's (ASX:ORA) dividend will be increasing to AU$0.075 on 11th of October. This makes the dividend yield 4.1%, which is above the industry average.
Check out our latest analysis for Orora
Orora's Earnings Easily Cover the Distributions
If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, the company was paying out 110% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 57%. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.
Earnings per share is forecast to rise by 33.7% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 81%. This is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.
Orora's Dividend Has Lacked Consistency
It's comforting to see that Orora has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2014, the first annual payment was AU$0.075, compared to the most recent full-year payment of AU$0.14. This implies that the company grew its distributions at a yearly rate of about 9.3% over that duration. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.
Dividend Growth May Be Hard To Achieve
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Over the past five years, it looks as though Orora's EPS has declined at around 4.6% a year. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.
Orora's Dividend Doesn't Look Sustainable
Overall, we always like to see the dividend being raised, but we don't think Orora will make a great income stock. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. Overall, we don't think this company has the makings of a good income stock.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 2 warning signs for Orora that investors should know about before committing capital to this stock. We have also put together a list of global stocks with a solid dividend.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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