Stock Analysis

Oceania Healthcare (NZSE:OCA) Is Paying Out A Larger Dividend Than Last Year

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Oceania Healthcare Limited (NZSE:OCA) will increase its dividend on the 21st of June to NZ$0.023, which is 9.5% higher than last year. This takes the dividend yield from 4.2% to 4.2%, which shareholders will be pleased with.

Check out our latest analysis for Oceania Healthcare

Oceania Healthcare's Payment Has Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Oceania Healthcare was earning enough to cover the dividend, but it wasn't generating any free cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Over the next year, EPS is forecast to expand by 1.0%. If the dividend continues along recent trends, we estimate the payout ratio will be 53%, which is in the range that makes us comfortable with the sustainability of the dividend.

NZSE:OCA Historic Dividend May 23rd 2022

Oceania Healthcare's Dividend Has Lacked Consistency

Even in its short history, we have seen the dividend cut. The first annual payment during the last 4 years was NZ$0.042 in 2018, and the most recent fiscal year payment was NZ$0.044. This means that it has been growing its distributions at 1.2% per annum over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

Dividend Growth May Be Hard To Come By

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's not great to see that Oceania Healthcare's earnings per share has fallen at approximately 7.1% per year over the past five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Oceania Healthcare's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Oceania Healthcare will make a great income stock. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 3 warning signs for Oceania Healthcare that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.