Some investors rely on dividends to grow their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that Overseas Commerce Ltd. (TLV:OVRS) is set to go ex-dividend in just two days. The ex-dividend date is one business day before the record date, which is the deadline by which shareholders must be present on the books of the company to be eligible for payment of a dividend. The ex-dividend date is important because any stock transaction must have settled before the record date to be eligible for a dividend. Therefore, if you buy shares of Overseas Commerce on or after November 22, you will not be eligible to receive the dividend when it is paid on December 13.
The company’s next dividend payment will be ₪0.055 per share. Last year, in total, the company distributed ₪0.11 to shareholders. Calculating the value of last year’s payments shows that Overseas Commerce has a return of 2.2% on the current share price of ₪5.268. If you’re buying this company for its dividend, you should get an idea of the reliability and sustainability of Overseas Commerce’s dividend. That’s why we always have to check if the dividend payouts seem sustainable and if the business is growing.
Our analysis indicates that OVRS is potentially undervalued!
If a company pays out more dividends than it has earned, the dividend may become unsustainable – a less than ideal situation. That’s why it’s good to see Overseas Commerce pay out a modest 40% of its profits. That said, even very profitable companies can sometimes not generate enough cash to pay the dividend, so we should always check if the dividend is covered by cash flow. Fortunately, its dividend payouts only accounted for 36% of the free cash flow it generated, which is a comfortable payout ratio.
It is encouraging to see that the dividend is covered by both earnings and cash flow. This generally suggests that the dividend is sustainable, as long as earnings don’t drop precipitously.
Click here to see how much profit Overseas Commerce has paid out over the past 12 months.
Have earnings and dividends increased?
Stocks of companies that generate sustainable earnings growth often offer the best dividend prospects because it is easier to increase the dividend when earnings increase. If business goes into a recession and the dividend is cut, the company could see its value drop precipitously. That’s why it’s a relief to see that Overseas Commerce’s earnings per share have grown 4.8% annually over the past five years. Recent earnings growth has been limited. However, companies that are seeing slow growth can often choose to pay out a higher percentage of their profits to shareholders, which could see the dividend continue to rise.
Many investors will gauge a company’s dividend yield by evaluating how much dividend payouts have changed over time. Overseas Commerce has seen its dividend drop by 21% per year on average over the past five years, which is not encouraging. It is unusual to see earnings per share increase at the same time as dividends per share decrease. We’re hoping that’s because the company is reinvesting heavily in its business, but it could also suggest that business is lumpy.
From a dividend perspective, should investors buy or avoid Overseas Commerce? Earnings per share growth has picked up somewhat and Overseas Commerce is paying out less than half of its earnings and cash flow as dividends. This is interesting for several reasons, as it suggests that management may be reinvesting heavily in the business, but it also offers the possibility of increasing the dividend over time. It might be nice to see earnings growing faster, but Overseas Commerce is cautious with its dividend payouts and could still perform reasonably well over the long term. Overseas Commerce looks solid overall in this analysis, and we would definitely consider looking into it further.
In light of this, although Overseas Commerce has an attractive dividend, it is worth knowing the risks associated with this stock. For example, Overseas Commerce has 4 warning signs (and 1 of concern) that we think you should know about.
If you are looking for good dividend payers, we recommend by consulting our selection of the best dividend-paying stocks.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.