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Is Osisko Gold Royalties Ltd's (TSE:OR) 1.6% Dividend Sustainable?

Could Osisko Gold Royalties Ltd (TSE:OR) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. Unfortunately, it's common for investors to be enticed in by the seemingly attractive yield, and lose money when the company has to cut its dividend payments.

Investors might not know much about Osisko Gold Royalties's dividend prospects, even though it has been paying dividends for the last five years and offers a 1.6% yield. A low yield is generally a turn-off, but if the prospects for earnings growth were strong, investors might be pleasantly surprised by the long-term results. The company also bought back stock during the year, equivalent to approximately 4.0% of the company's market capitalisation at the time. Some simple analysis can reduce the risk of holding Osisko Gold Royalties for its dividend, and we'll focus on the most important aspects below.

Explore this interactive chart for our latest analysis on Osisko Gold Royalties!

TSX:OR Historical Dividend Yield, October 30th 2019
TSX:OR Historical Dividend Yield, October 30th 2019

Payout ratios

Dividends are usually paid out of company earnings. If a company is paying more than it earns, then the dividend might become unsustainable - hardly an ideal situation. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company's net income after tax. While Osisko Gold Royalties pays a dividend, it reported a loss over the last year. When a company recently reported a loss, we should investigate if its cash flows covered the dividend.

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Osisko Gold Royalties's cash payout ratio last year was 21%. Cash flows are typically lumpy, but this looks like an appropriately conservative payout.

We update our data on Osisko Gold Royalties every 24 hours, so you can always get our latest analysis of its financial health, here.

Dividend Volatility

Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. Looking at the data, we can see that Osisko Gold Royalties has been paying a dividend for the past five years. During the past five-year period, the first annual payment was CA$0.12 in 2014, compared to CA$0.20 last year. Dividends per share have grown at approximately 11% per year over this time.

We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

Dividend Growth Potential

While dividend payments have been relatively reliable, it would also be nice if earnings per share (EPS) were growing, as this is essential to maintaining the dividend's purchasing power over the long term. Osisko Gold Royalties's EPS have fallen by approximately 40% per year. A sharp decline in earnings per share is not great from from a dividend perspective, as even conservative payout ratios can come under pressure if earnings fall far enough.

Conclusion

When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. We're not keen on the fact that Osisko Gold Royalties paid dividends despite reporting a loss over the past year, although fortunately its dividend was covered by cash flow. Second, earnings per share have been in decline, and the dividend history is shorter than we'd like. In summary, Osisko Gold Royalties has a number of shortcomings that we'd find it hard to get past. Things could change, but we think there are likely more attractive alternatives out there.

Given that earnings are not growing, the dividend does not look nearly so attractive. Businesses can change though, and we think it would make sense to see what analysts are forecasting for the company.

We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.

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.