Stock Analysis

Oceania Healthcare (NZSE:OCA) Is Paying Out Less In Dividends Than Last Year

NZSE:OCA
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The board of Oceania Healthcare Limited (NZSE:OCA) has announced that the dividend on 14th of December will be reduced by 9.5% from last year's NZ$0.021 to NZ$0.019. This means the annual payment is 5.6% of the current stock price, which is above the average for the industry.

Check out the opportunities and risks within the NZ Healthcare industry.

Oceania Healthcare'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. Prior to this announcement, Oceania Healthcare's dividend was making up a very large proportion of earnings, and the company was also not generating any cash flow to offset this. We think that this practice can make the dividend quite risky in the future.

Over the next year, EPS is forecast to expand by 137.5%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 37% which brings it into quite a comfortable range.

historic-dividend
NZSE:OCA Historic Dividend November 26th 2022

Oceania Healthcare's Dividend Has Lacked Consistency

It's comforting to see that Oceania Healthcare has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. The dividend has gone from an annual total of NZ$0.042 in 2017 to the most recent total annual payment of NZ$0.044. Dividend payments have been growing, but very slowly over the period. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

The Dividend Has Limited Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Oceania Healthcare's earnings per share has shrunk at 17% a year over the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

Oceania Healthcare's Dividend Doesn't Look Sustainable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The payments are bit high to be considered sustainable, and the track record isn't the best. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 4 warning signs for Oceania Healthcare (of which 1 makes us a bit uncomfortable!) you should know about. Is Oceania Healthcare 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.