Olin: Dividend Dynamo, or Blowup?

Dividend investing is a tried-and-true strategy for generating strong, steady returns in economies both good and bad. But as corporate America's slew of dividend cuts and suspensions over the past few years has demonstrated, it's not enough simply to buy a high yield. You also need to make sure those payouts are sustainable.
Let's examine how Olin (NYSE: OLN) stacks up. In this series, we consider four critical factors investors should examine in every dividend stock. We'll then tie it all together to look at whether Olin is a dividend dynamo or a disaster in the making.
1. Yield
First and foremost, dividend investors like a large forward yield. But if a yield gets too high, it may reflect investors' doubts about the payout's sustainability. If investors had confidence in the stock, they'd be buying it, driving up the share price and shrinking the yield.
Olin yields 3.7%, quite a bit higher than the S&P 500's 2.1%.
2. Payout ratio
The payout ratio might be the most important metric for judging dividend sustainability. It compares the amount of money a company paid out in dividends last year to the earnings it generated. A ratio that's too high -- say, greater than 80% of earnings -- indicates that the company may be stretching to make payouts it can't afford, even when its dividend yield doesn't seem particularly high.
Olin has a modest payout ratio of 28%.
3. Balance sheet
The best dividend payers have the financial fortitude to fund growth and respond to whatever the economy and competitors throw at them. The interest coverage ratio indicates whether a company is having trouble meeting its interest payments -- any ratio less than 5 times is a warning sign. Meanwhile, the debt-to-equity ratio is a good measure of a company's total debt burden.
Olin has a debt-to-equity ratio of 59% and an interest coverage rate of 7.7 times.
4. Growth
A large dividend is nice; a large, growing dividend is even better. To support a growing dividend, we also want to see earnings growth.
Over the past five years, Olin's earnings per share have grown at a 7% average annual rate. Olin began paying its $0.20 per share dividend in August 2010.
The Foolish bottom line
Olin could very well be a dividend dynamo. The company has a generous yield, a modest payout ratio, manageable debt, and earnings growth to boot.... Read more

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