Oceana Group (JSE:OCE) Is Increasing Its Dividend To ZAR1.30
Oceana Group Limited (JSE:OCE) will increase its dividend on the 26th of June to ZAR1.30, which is 136% higher than last year's payment from the same period of ZAR0.55. This takes the annual payment to 4.8% of the current stock price, which is about average for the industry.
View our latest analysis for Oceana Group
Oceana Group's Earnings Easily Cover The Distributions
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, Oceana Group's dividend was only 52% of earnings, however it was paying out 113% of free cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.
Looking forward, earnings per share is forecast to rise by 23.8% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 43%, which is in the range that makes us comfortable with the sustainability of the dividend.
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2013, the dividend has gone from ZAR3.01 total annually to ZAR3.46. This implies that the company grew its distributions at a yearly rate of about 1.4% over that duration. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.
We Could See Oceana Group's Dividend Growing
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's encouraging to see that Oceana Group has been growing its earnings per share at 9.1% a year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.
Our Thoughts On Oceana Group's Dividend
Overall, we always like to see the dividend being raised, but we don't think Oceana Group will make a great income stock. While Oceana Group is earning enough to cover the payments, the cash flows are lacking. We don't think Oceana Group is a great stock to add to your portfolio if income is your focus.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 2 warning signs for Oceana Group (1 can't be ignored!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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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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