Orica Limited's (ASX:ORI) dividend will be increasing from last year's payment of the same period to A$0.32 on 22nd of December. Despite this raise, the dividend yield of 2.4% is only a modest boost to shareholder returns.

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Orica's Future Dividend Projections Appear Well Covered By Earnings

If it is predictable over a long period, even low dividend yields can be attractive. Prior to this announcement, the company was paying out 170% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 50%. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

Looking forward, earnings per share is forecast to rise exponentially over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 34%, which would make us comfortable with the dividend's sustainability, despite the levels currently being elevated.ASX:ORI Historic Dividend November 20th 2025

View our latest analysis for Orica

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of A$0.96 in 2015 to the most recent total annual payment of A$0.57. This works out to be a decline of approximately 5.1% per year over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth Could Be Constrained

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Orica has impressed us by growing EPS at 14% per year over the past five years. Although per-share earnings are growing at a credible rate, the massive payout ratio may limit growth in the company's future dividend payments.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Orica's payments are rock solid. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 2 warning signs for Orica that investors should know about before committing capital to this stock. Is Orica not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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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