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The board of Blue Owl Capital Inc. (NYSE:OWL) has announced that it will be paying its dividend of $0.225 on the 28th of May, an increased payment from last year's comparable dividend. This will take the annual payment to 4.9% of the stock price, which is above what most companies in the industry pay.
We've discovered 3 warning signs about Blue Owl Capital. View them for free.
Blue Owl Capital's Future Dividends May Potentially Be At Risk
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, the company's dividend was much higher than its earnings. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.
EPS is forecast to rise very quickly over the next 12 months. If recent patterns in the dividend continues, we would start to get a bit worried, with the payout ratio possibly reaching 96%.
Check out our latest analysis for Blue Owl Capital
Blue Owl Capital Doesn't Have A Long Payment History
Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. The annual payment during the last 4 years was $0.16 in 2021, and the most recent fiscal year payment was $0.90. This implies that the company grew its distributions at a yearly rate of about 54% over that duration. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.
Dividend Growth Could Be Constrained
Investors could be attracted to the stock based on the quality of its payment history. Blue Owl Capital has impressed us by growing EPS at 131% per year over the past three years. Although earnings per share is up nicely Blue Owl Capital is paying out 485% of its earnings as dividends, which we feel is borderline unsustainable without extenuating circumstances.
The Dividend Could Prove To Be Unreliable
Overall, we always like to see the dividend being raised, but we don't think Blue Owl Capital will make a great income stock. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. Overall, we don't think this company has the makings of a good income stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 3 warning signs for Blue Owl Capital you should be aware of, and 1 of them is a bit concerning. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.