Oracle Financial Services Software's (NSE:OFSS) Dividend Will Be Reduced To ₹190

Oracle Financial Services Software Limited's (NSE:OFSS) dividend is being reduced to ₹190 on the 3rd of June. This means the annual payment is 5.4% of the current stock price, which is above the average for the industry.

View our latest analysis for Oracle Financial Services Software

Oracle Financial Services Software's Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last dividend made up a very large portion of earnings and also represented 90% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but it is still in a reasonable range to continue with.

Over the next year, EPS is forecast to expand by 18.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 68%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Oracle Financial Services Software's Dividend Has Lacked Consistency

Looking back, Oracle Financial Services Software's dividend hasn't been particularly consistent. This suggests that the dividend might not be the most reliable. The dividend has gone from ₹970 in 2014 to the most recent annual payment of ₹190. The dividend has fallen 80% over that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

We Could See Oracle Financial Services Software's Dividend Growing

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Oracle Financial Services Software has impressed us by growing EPS at 9.4% per year over the past five years. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Oracle Financial Services Software that you should be aware of before investing. Is Oracle Financial Services Software not quite the opportunity you were looking for? Why not check out 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.