Is It Worth Considering Oceana Group Limited (JSE:OCE) For Its Upcoming Dividend?

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Oceana Group Limited (JSE:OCE) is about to trade ex-dividend in the next three days. If you purchase the stock on or after the 29th of December, you won't be eligible to receive this dividend, when it is paid on the 4th of January.

Oceana Group's next dividend payment will be R2.93 per share, on the back of last year when the company paid a total of R3.93 to shareholders. Looking at the last 12 months of distributions, Oceana Group has a trailing yield of approximately 5.6% on its current stock price of ZAR70.52. If you buy this business for its dividend, you should have an idea of whether Oceana Group's dividend is reliable and sustainable. So we need to investigate whether Oceana Group can afford its dividend, and if the dividend could grow.

See our latest analysis for Oceana Group

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Oceana Group paid out more than half (60%) of its earnings last year, which is a regular payout ratio for most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Thankfully its dividend payments took up just 32% of the free cash flow it generated, which is a comfortable payout ratio.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Oceana Group, with earnings per share up 2.1% on average over the last five years. Earnings per share growth has been slim, and the company is already paying out a majority of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Oceana Group has delivered 7.8% dividend growth per year on average over the past 10 years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Has Oceana Group got what it takes to maintain its dividend payments? Earnings per share growth has been modest and Oceana Group paid out over half of its profits and less than half of its free cash flow, although both payout ratios are within normal limits. All things considered, we are not particularly enthused about Oceana Group from a dividend perspective.

While it's tempting to invest in Oceana Group for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 2 warning signs for Oceana Group you should know about.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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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