Looks like Oracle Financial Services Software Limited (NSE:OFSS) is set to go ex-dividend in the next three days. Typically, the ex-dividend date is one business day before the record date which is the date a company determines which shareholders are eligible to receive a dividend. The ex-dividend date is important because each time a stock is bought or sold, the transaction takes at least two business days to settle. As a result, Oracle Financial Services Software investors who buy the stock on or after May 13 will not receive the dividend, which will be paid on June 2.
The company’s next dividend payment will be ₹190 per share, following last year when the company paid a total of ₹190 to shareholders. Based on the value of last year’s payments, Oracle Financial Services Software stock has a yield of around 5.4% on the current share price of ₹3517.1. If you’re buying this company for its dividend, you should get an idea of the reliability and sustainability of Oracle Financial Services Software’s dividend. That’s why we always have to check if the dividend payouts seem sustainable and if the business is growing.
Check out our latest analysis for Oracle Financial Services Software
Dividends are usually paid out of company earnings, so if a company pays out more than it has earned, its dividend is usually at risk of being reduced. It paid out 87% of its earnings as dividends last year, which isn’t unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a downturn in activity. We would be concerned about the risk of a drop in income. Still, cash flow is even more important than earnings in evaluating a dividend, so we need to see if the company has generated enough cash to pay its distribution. It paid out 95% of its free cash flow as dividends last year, which is outside the comfort zone for most companies. Businesses generally need cash more than revenue – expenses don’t pay for themselves – so it’s not great to see them paying so much out of their cash flow.
While Oracle Financial Services Software’s dividends were covered by the company’s reported earnings, cash is a bit more important, so it’s not nice to see the company didn’t generate enough cash to pay its dividend. Cash is king, as they say, and if Oracle Financial Services Software repeatedly pays out dividends that aren’t well covered by cash flow, we’d consider that a warning sign.
Click here to see how much of its earnings Oracle Financial Services Software has paid out over the past 12 months.
Have earnings and dividends increased?
Stocks of companies that generate sustainable earnings growth often offer the best dividend prospects because it is easier to increase the dividend when earnings increase. If earnings fall and the company is forced to cut its dividend, investors could see the value of their investment go up in smoke. That’s why it’s a relief to see that Oracle Financial Services Software’s earnings per share have grown 9.4% annually over the past five years. Earnings have been growing at a steady pace, but we fear dividend payments have consumed the bulk of the company’s cash flow over the past year.
Another key way to gauge a company’s dividend outlook is to measure its historical rate of dividend growth. Oracle Financial Services Software’s dividend payouts per share have declined an average of 18% per year over the past eight years, which is uninspiring. It is unusual to see earnings per share increase at the same time as dividends per share decrease. We’re hoping that’s because the company is reinvesting heavily in its business, but it could also suggest that business is lumpy.
Is Oracle Financial Services Software an attractive dividend stock, or better left on the shelf? Oracle Financial Services Software pays out a reasonable percentage of its revenue and an uncomfortably high 95% of its cash flow as dividends. At least earnings per share rose steadily. With the way things are going from a dividend perspective, we’d be inclined to steer clear of Oracle Financial Services Software.
That said, if you are considering this stock without worrying too much about the dividend, you still need to be aware of the risks associated with Oracle Financial Services software. For example, we found 1 warning sign for Oracle Financial Services Software which we recommend you consider before investing in the company.
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