Don’t buy Old Republic International Corporation (NYSE: ORI) for its next dividend without doing these checks


International Society of the Former Republic The stock (NYSE: ORI) is about to trade off-dividend in four days. You will need to buy shares before January 4 to receive the dividend, which will be paid on January 15.

The upcoming dividend for Old Republic International will put a total of US $ 1.00 per share in the pockets of shareholders, up from the total dividends of US $ 0.84 last year. Dividends are a major contributor to returns on investment for long-term holders, but only if the dividend continues to be paid. That is why we should always check whether dividend payments seem sustainable and whether the business is growing.

Dividends are usually paid out of business income, so if a business pays more than it earned, its dividend is usually at risk of being reduced. Its dividend payout ratio is 79% of profits, which means the company pays out the majority of its profits. The relatively limited reinvestment of earnings could slow the rate of future earnings growth. We would be concerned if profits started to decline.

Companies that pay less dividends than they earn profits generally have more sustainable dividends. The lower the payout ratio, the more leeway the company has before being forced to reduce the dividend.

Click on here to see the company’s payout ratio, as well as analysts’ estimates of its future dividends.

NYSE: Historical ORI Dividend December 30, 2020

Have profits and dividends increased?

Companies with declining profits are tricky from a dividend standpoint. If profits fall and the company is forced to cut its dividend, investors could see the value of their investment go up in smoke. Old Republic International’s earnings per share have fallen about 7.9% per year over the past five years. When earnings per share decline, the maximum amount of dividends that can be paid also decreases.

Most investors will primarily assess a company’s dividend prospects by checking the historical rate of dividend growth. Over the past 10 years, Old Republic International has increased its dividend to around 2.0% per year on average.

The bottom line

From a dividend perspective, should investors buy or avoid Old Republic International? Earnings per share are declining and the company pays more than half of its profits to its shareholders; not a tempting combination. All things considered, we are not optimistic about its dividend outlook and would be inclined to put it aside for now.

That said, if you look at this stock without worrying too much about the dividend, you should still be familiar with the risks associated with Old Republic International. Our analysis shows 2 warning signs for Old Republic International and you must know them before you buy stocks.

If you are looking for dividend paying stocks, we recommend check out our list of the highest dividend paying stocks with a yield above 2% and a dividend coming soon.

This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell any stock and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.

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