Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. In the last few years OceanaGold Corporation (TSE:OGC) has paid a dividend to shareholders. Today it yields 1.3%. Should it have a place in your portfolio? Let’s take a look at OceanaGold in more detail.
Here’s how I find good dividend stocks
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- Is their annual yield among the top 25% of dividend payers?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has dividend per share amount increased over the past?
- Does earnings amply cover its dividend payments?
- Will it have the ability to keep paying its dividends going forward?
Does OceanaGold pass our checks?
OceanaGold has a trailing twelve-month payout ratio of 12%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect OGC’s payout to increase to 19% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 1.1%. However, EPS is forecasted to fall to $0.19 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. The reality is that it is too early to consider OceanaGold as a dividend investment. It has only been consistently paying dividends for 4 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Relative to peers, OceanaGold generates a yield of 1.3%, which is high for Metals and Mining stocks but still below the low risk savings rate.
After digging a little deeper into OceanaGold’s yield, it’s easy to see why you should be cautious investing in the company just for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. There are three important factors you should look at:
- Future Outlook: What are well-informed industry analysts predicting for OGC’s future growth? Take a look at our free research report of analyst consensus for OGC’s outlook.
- Valuation: What is OGC worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether OGC is currently mispriced by the market.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.