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Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Historically, OC Oerlikon Corporation AG (VTX:OERL) has paid dividends to shareholders, and these days it yields 2.8%. Let's dig deeper into whether OC Oerlikon should have a place in your portfolio.

View our latest analysis for OC Oerlikon

5 questions to ask before buying a dividend stock

If you are a dividend investor, you should always assess these five key metrics:

• Does it pay an annual yield higher than 75% of dividend payers?

• Has it paid dividend every year without dramatically reducing payout in the past?

• Has the amount of dividend per share grown over the past?

• Is its earnings sufficient to payout dividend at the current rate?

• Based on future earnings growth, will it be able to continue to payout dividend at the current rate?

How does OC Oerlikon fare?

The current trailing twelve-month payout ratio for the stock is 71%, which means that the dividend is covered by earnings. In the near future, analysts are predicting lower payout ratio of 55% which, assuming the share price stays the same, leads to a dividend yield of around 3.2%. Furthermore, EPS is also forecasted to fall to CHF0.32 in the upcoming year. The lower EPS on top of a lower payout ratio will lead to a fall in dividend payment moving forward.

If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.

If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you're eyeing out is reliable in its payments. Unfortunately, it is really too early to view OC Oerlikon as a dividend investment. It has only been consistently paying dividends for 7 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.

Relative to peers, OC Oerlikon produces a yield of 2.8%, which is high for Machinery stocks but still below the market's top dividend payers.

Next Steps:

Whilst there are few things you may like about OC Oerlikon from a dividend stock perspective, the truth is that overall it probably is not the best choice for a dividend investor. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. There are three key aspects you should further examine:

1. Future Outlook: What are well-informed industry analysts predicting for OERL’s future growth? Take a look at our free research report of analyst consensus for OERL’s outlook.

2. Valuation: What is OERL worth today? Even if the stock is a cash cow, it's not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether OERL is currently mispriced by the market.

3. Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.