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Readers hoping to buy OTRS AG (FRA:TR9) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase OTRS' shares before the 16th of August to receive the dividend, which will be paid on the 20th of August.
The company's next dividend payment will be €0.10 per share, on the back of last year when the company paid a total of €0.10 to shareholders. Calculating the last year's worth of payments shows that OTRS has a trailing yield of 2.5% on the current share price of €3.96. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether OTRS can afford its dividend, and if the dividend could grow.
View our latest analysis for OTRS
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. OTRS reported a loss last year, so it's not great to see that it has continued paying a dividend. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable.
Click here to see how much of its profit OTRS paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. OTRS was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last three years, OTRS has lifted its dividend by approximately 13% a year on average.
We update our analysis on OTRS every 24 hours, so you can always get the latest insights on its financial health, here.
The Bottom Line
Should investors buy OTRS for the upcoming dividend? First, it's not great to see the company paying a dividend despite being loss-making over the last year. Second, the dividend was not well covered by cash flow." It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.