Otis Worldwide Corporation (NYSE:OTIS) Passed Our Checks, And It's About To Pay A US$0.29 Dividend

Otis Worldwide Corporation (NYSE:OTIS) is about to trade ex-dividend in the next four days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Thus, you can purchase Otis Worldwide's shares before the 17th of November in order to receive the dividend, which the company will pay on the 10th of December.

The company's next dividend payment will be US$0.29 per share, and in the last 12 months, the company paid a total of US$1.16 per share. Based on the last year's worth of payments, Otis Worldwide has a trailing yield of 1.5% on the current stock price of $77.37. If you buy this business for its dividend, you should have an idea of whether Otis Worldwide's dividend is reliable and sustainable. So we need to investigate whether Otis Worldwide can afford its dividend, and if the dividend could grow.

See our latest analysis for Otis Worldwide

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Otis Worldwide paid out a comfortable 36% of its profit last year. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Thankfully its dividend payments took up just 36% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that Otis Worldwide's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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

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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Otis Worldwide earnings per share are up 7.0% per annum over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Otis Worldwide has delivered 13% dividend growth per year on average over the past three years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

Is Otis Worldwide worth buying for its dividend? Earnings per share growth has been growing somewhat, and Otis Worldwide is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Otis Worldwide is halfway there. It's a promising combination that should mark this company worthy of closer attention.

On that note, you'll want to research what risks Otis Worldwide is facing. Every company has risks, and we've spotted 2 warning signs for Otis Worldwide (of which 1 is significant!) you should know about.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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