Ordina N.V. (AMS:ORDI) will increase its dividend from last year's comparable payment on the 20th of April to €0.395. This makes the dividend yield 6.6%, which is above the industry average.
While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Ordina's stock price has increased by 46% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.
View our latest analysis for Ordina
Ordina Is Paying Out More Than It Is Earning
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the company was paying out 153% of what it was earning and 92% of cash flows. While the cash payout ratio isn't necessarily a cause for concern, the company is probably focusing more on returning cash to shareholders than growing the business.
Over the next year, EPS is forecast to expand by 55.0%. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 136% over the next year.
Ordina's Dividend Has Lacked Consistency
It's comforting to see that Ordina has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. The dividend has gone from an annual total of €0.02 in 2017 to the most recent total annual payment of €0.395. This works out to be a compound annual growth rate (CAGR) of approximately 64% a year over that time. Ordina has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.
Dividend Growth Could Be Constrained
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Ordina has impressed us by growing EPS at 51% per year over the past five years. EPS has been growing well, but Ordina has been paying out a massive proportion of its earnings, which can make the dividend tough to maintain.
The Dividend Could Prove To Be Unreliable
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. Strong earnings growth means Ordina has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We would be a touch cautious of relying on this stock primarily for the dividend income.