Here's Why We're Wary Of Buying Oceania Healthcare's (NZSE:OCA) For Its Upcoming Dividend

By
Simply Wall St
Published
May 31, 2021
NZSE:OCA
Source: Shutterstock

Oceania Healthcare Limited (NZSE:OCA) is about to trade ex-dividend in the next three days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase Oceania Healthcare's shares on or after the 4th of June, you won't be eligible to receive the dividend, when it is paid on the 22nd of June.

The company's next dividend payment will be NZ$0.021 per share. Last year, in total, the company distributed NZ$0.025 to shareholders. Calculating the last year's worth of payments shows that Oceania Healthcare has a trailing yield of 2.4% on the current share price of NZ$1.4. If you buy this business for its dividend, you should have an idea of whether Oceania Healthcare's dividend is reliable and sustainable. So we need to investigate whether Oceania Healthcare can afford its dividend, and if the dividend could grow.

See our latest analysis for Oceania Healthcare

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Oceania Healthcare reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If Oceania Healthcare didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. The good news is it paid out just 11% of its free cash flow in the last year.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
NZSE:OCA Historic Dividend May 31st 2021

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Oceania Healthcare was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Oceania Healthcare has seen its dividend decline 6.8% per annum on average over the past three years, which is not great to see. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

We update our analysis on Oceania Healthcare every 24 hours, so you can always get the latest insights on its financial health, here.

The Bottom Line

Should investors buy Oceania Healthcare for the upcoming dividend? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. It's not that we think Oceania Healthcare is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

With that being said, if you're still considering Oceania Healthcare as an investment, you'll find it beneficial to know what risks this stock is facing. In terms of investment risks, we've identified 3 warning signs with Oceania Healthcare and understanding them should be part of your investment process.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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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. 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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