Why Buying OCI Partners LP (NYSE:OCIP) For Its 7.37% Dividend Could Be A Mistake
Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Over the past 4 years, OCI Partners LP (NYSE:OCIP) has returned an average of 8.00% per year to shareholders in terms of dividend yield. Let’s dig deeper into whether OCI Partners should have a place in your portfolio. See our latest analysis for OCI Partners
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:
Is their annual yield among the top 25% of dividend payers?
Has it paid dividend every year without dramatically reducing payout in the past?
Has dividend per share risen in the past couple of years?
Does earnings amply cover its dividend payments?
Will the company be able to keep paying dividend based on the future earnings growth?
How does OCI Partners fare?
OCI Partners has a trailing twelve-month payout ratio of more than 200% of earnings, which suggests that the dividend is not well-covered by earnings by any means. Going forward, analysts expect OCIP’s payout to fall to 180.24% of its earnings, which leads to a dividend yield of 12.71%.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. The reality is that it is too early to consider OCI Partners as a dividend investment. It has only been consistently paying dividends for 4 years, however, standard practice for reliable payers is to look for a 10-year minimum track record. Compared to its peers, OCI Partners has a yield of 7.37%, which is high for Chemicals stocks.
Next Steps:
After digging a little deeper into OCI Partners’s yield, it’s easy to see why you should be cautious investing in the company just 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 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 look at:
Valuation: What is OCIP 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 OCIP is currently mispriced by the market.
Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on OCI Partners’s board and the CEO’s back ground.
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 pass 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.
