Oceana Group (JSE:OCE) Has Announced That It Will Be Increasing Its Dividend To ZAR1.30

The board of Oceana Group Limited (JSE:OCE) has announced that it will be paying its dividend of ZAR1.30 on the 26th of June, an increased payment from last year's comparable dividend. The payment will take the dividend yield to 5.7%, which is in line with the average for the industry.

Check out our latest analysis for Oceana Group

Oceana Group's Payment Has Solid Earnings Coverage

We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, Oceana Group's dividend was only 52% of earnings, however it was paying out 137% of free cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Looking forward, earnings per share is forecast to rise by 23.8% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 43%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of ZAR3.01 in 2013 to the most recent total annual payment of ZAR4.21. This works out to be a compound annual growth rate (CAGR) of approximately 3.4% a year over that time. 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.

Oceana Group Could Grow Its Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's encouraging to see that Oceana Group has been growing its earnings per share at 9.1% a year over the past five years. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

Our Thoughts On Oceana Group's Dividend

Overall, we always like to see the dividend being raised, but we don't think Oceana Group will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Oceana Group has 2 warning signs (and 1 which is a bit concerning) we think you should know about. Is Oceana Group 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.