A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Historically, Oracle Financial Services Software Limited (NSE:OFSS) has paid a dividend to shareholders. It currently yields 3.9%. Does Oracle Financial Services Software tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
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5 questions I ask before picking a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- Is it paying an annual yield above 75% of dividend payers?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has dividend per share amount increased over the past?
- Is is able to pay the current rate of dividends from its earnings?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How well does Oracle Financial Services Software fit our criteria?
The company currently pays out 86% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. Going forward, analysts expect OFSS’s payout to remain around the same level at 81% of its earnings. Assuming a constant share price, this equates to a dividend yield of 4.7%. Moreover, EPS should increase to ₹186.51.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. The reality is that it is too early to consider Oracle Financial Services Software as a dividend investment. It has only been consistently paying dividends for 5 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
In terms of its peers, Oracle Financial Services Software produces a yield of 3.9%, which is high for Software stocks.
Considering the dividend attributes we analyzed above, Oracle Financial Services Software is definitely worth keeping an eye on for someone looking to build a dedicated income portfolio. 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. I’ve put together three important aspects you should further research:
- Future Outlook: What are well-informed industry analysts predicting for OFSS’s future growth? Take a look at our free research report of analyst consensus for OFSS’s outlook.
- Valuation: What is OFSS 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 OFSS is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.