It Might Not Be A Great Idea To Buy Osisko Gold Royalties Ltd (TSE:OR) For Its Next Dividend

It looks like Osisko Gold Royalties Ltd (TSE:OR) is about to go ex-dividend in the next 3 days. Investors can purchase shares before the 30th of December in order to be eligible for this dividend, which will be paid on the 15th of January.

Osisko Gold Royalties's next dividend payment will be CA$0.05 per share. Last year, in total, the company distributed CA$0.20 to shareholders. Based on the last year's worth of payments, Osisko Gold Royalties stock has a trailing yield of around 1.3% on the current share price of CA$15.85. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Osisko Gold Royalties can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Osisko Gold Royalties

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. Osisko Gold Royalties's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Osisko Gold Royalties paid out more free cash flow than it generated - 190%, to be precise - last year, which we think is concerningly 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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Osisko Gold Royalties reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, six years ago, Osisko Gold Royalties has lifted its dividend by approximately 8.9% a year on average.

Get our latest analysis on Osisko Gold Royalties's balance sheet health here.

The Bottom Line

Has Osisko Gold Royalties got what it takes to maintain its dividend payments? We're a bit uncomfortable with it paying a dividend while being loss-making, especially given that the dividend was not well covered by free cash flow. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

With that being said, if you're still considering Osisko Gold Royalties as an investment, you'll find it beneficial to know what risks this stock is facing. For example, we've found 1 warning sign for Osisko Gold Royalties that we recommend you consider before investing in the business.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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. 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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