Dividend Investors: Don't Be Too Quick To Buy Oracle Financial Services Software Limited (NSE:OFSS) For Its Upcoming Dividend

Readers hoping to buy Oracle Financial Services Software Limited (NSE:OFSS) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Meaning, you will need to purchase Oracle Financial Services Software's shares before the 7th of May to receive the dividend, which will be paid on the 23rd of May.

The company's next dividend payment will be ₹240.00 per share, and in the last 12 months, the company paid a total of ₹240 per share. Based on the last year's worth of payments, Oracle Financial Services Software has a trailing yield of 3.1% on the current stock price of ₹7760.25. If you buy this business for its dividend, you should have an idea of whether Oracle Financial Services Software's dividend is reliable and sustainable. So we need to investigate whether Oracle Financial Services Software can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Oracle Financial Services Software

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year Oracle Financial Services Software paid out 94% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. A useful secondary check can be to evaluate whether Oracle Financial Services Software generated enough free cash flow to afford its dividend. Over the past year it paid out 111% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Cash is slightly more important than profit from a dividend perspective, but given Oracle Financial Services Software's payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.

Click here to see how much of its profit Oracle Financial Services Software paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Oracle Financial Services Software earnings per share are up 9.6% per annum over the last five years. Earnings per share have been growing steadily, although a payout ratio this high suggests future growth is likely to slow, and the dividend may also be at risk of a cut if business enters a downturn.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Oracle Financial Services Software's dividend payments per share have declined at 13% per year on average over the past 10 years, which is uninspiring. Oracle Financial Services Software is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

The Bottom Line

Should investors buy Oracle Financial Services Software for the upcoming dividend? The dividends are not well covered by either income or free cash flow, although at least earnings per share are slowly increasing. Bottom line: Oracle Financial Services Software has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

So if you're still interested in Oracle Financial Services Software despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. To help with this, we've discovered 3 warning signs for Oracle Financial Services Software (2 are concerning!) that you ought to be aware of before buying the shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.