Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Orora Limited (ASX:ORA) is about to trade ex-dividend in the next four days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. This means that investors who purchase Orora's shares on or after the 29th of August will not receive the dividend, which will be paid on the 7th of October.

The company's upcoming dividend is AU$0.05 a share, following on from the last 12 months, when the company distributed a total of AU$0.10 per share to shareholders. Last year's total dividend payments show that Orora has a trailing yield of 4.4% on the current share price of AU$2.27. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

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Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Last year, Orora paid out 200% of its profit to shareholders in the form of dividends. This is not sustainable behaviour and requires a closer look on behalf of the purchaser. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the past year it paid out 125% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Cash is slightly more important than profit from a dividend perspective, but given Orora's payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.

Check out our latest analysis for Orora

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.ASX:ORA Historic Dividend August 24th 2025

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Orora's earnings per share have been growing at 13% a year for the past five years. Earnings are growing pretty quickly, which is great, but it's uncomfortably to see the company paying out 200% of earnings. Unless there are extenuating circumstances, we feel this is a clear concern around the sustainability of the dividend.

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Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Orora has lifted its dividend by approximately 1.3% a year on average. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.

To Sum It Up

Should investors buy Orora for the upcoming dividend? While it's nice to see earnings per share growing, we're curious about how Orora intends to continue growing, or maintain the dividend in a downturn given that it's paying out such a high percentage of its earnings and cashflow. Bottom line: Orora has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

Although, if you're still interested in Orora and want to know more, you'll find it very useful to know what risks this stock faces. Our analysis shows 3 warning signs for Orora that we strongly recommend you have a look at before investing in the company.

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Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

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