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There is a lot to be liked about Omnicom Group Inc. (NYSE:OMC) as an income stock. It has paid dividends over the past 10 years. The company currently pays out a dividend yield of 3.5% to shareholders, making it a relatively attractive dividend stock. Does Omnicom Group tick all the boxes of a great dividend stock? Below, I'll take you through my analysis.
How I analyze a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Does it pay an annual yield higher than 75% 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 be able to continue to payout at the current rate in the future?
How does Omnicom Group fare?
Omnicom Group has a trailing twelve-month payout ratio of 41%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect OMC's payout to increase to 48% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 3.6%. However, EPS is forecasted to fall to $5.77 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
If there is one thing that you want to be reliable in your life, it's dividend stocks and their constant income stream. OMC has increased its DPS from $0.60 to $2.6 in the past 10 years. It has also been paying out dividend consistently during this time, as you'd expect for a company increasing its dividend levels. These are all positive signs of a great, reliable dividend stock.
In terms of its peers, Omnicom Group generates a yield of 3.5%, which is high for Media stocks but still below the market's top dividend payers.
With this in mind, I definitely rank Omnicom Group as a strong dividend stock, and makes it worth further research for anyone who likes steady income generation from their portfolio. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. I've put together three important aspects you should look at:
- Future Outlook: What are well-informed industry analysts predicting for OMC’s future growth? Take a look at our free research report of analyst consensus for OMC’s outlook.
- Valuation: What is OMC 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 OMC 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 email@example.com. 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.