Omnicom Group Inc. (NYSE:OMC) has pleased shareholders over the past 10 years, by paying out dividends. The stock currently pays out a dividend yield of 3.2%, and has a market cap of US$16b. Let’s dig deeper into whether Omnicom Group should have a place in your portfolio.
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5 checks you should use to assess a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Is their annual yield among the top 25% of dividend payers?
- Does it consistently pay out dividends without missing a payment of significantly cutting payout?
- Has it increased its dividend per share amount over the past?
- Does earnings amply cover its dividend payments?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How does Omnicom Group fare?
Omnicom Group has a trailing twelve-month payout ratio of 46%, which means that the dividend is covered by earnings. However, going forward, analysts expect OMC’s payout to fall to 37% of its earnings. Assuming a constant share price, this equates to a dividend yield of 3.4%. However, EPS should increase to $5.69, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. In the case of OMC it has increased its DPS from $0.60 to $2.4 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. This is an impressive feat, which makes OMC a true dividend rockstar.
Compared to its peers, Omnicom Group has a yield of 3.2%, which is high for Media stocks but still below the market’s top dividend payers.
With this in mind, I definitely rank Omnicom Group as a strong dividend stock, and makes it worth further research for anyone who likes steady income generation from their portfolio. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. I’ve put together three essential aspects you should look at:
- Future Outlook: What are well-informed industry analysts predicting for OMC’s future growth? Take a look at our free research report of analyst consensus for OMC’s outlook.
- Valuation: What is OMC worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether OMC is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.