Oceana Group (JSE:OCE) Is Paying Out Less In Dividends Than Last Year

Oceana Group Limited (JSE:OCE) is reducing its dividend to R0.55 on the 27th of June. However, the dividend yield of 5.3% still remains in a typical range for the industry.

View 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. At the time of the last dividend payment, Oceana Group was paying out a very large proportion of what it was earning and 99% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

Over the next year, EPS is forecast to expand by 47.2%. If the dividend continues on this path, the payout ratio could be 51% by next year, which we think can be pretty sustainable going forward.

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 R2.20 in 2012 to the most recent annual payment of R3.03. This works out to be a compound annual growth rate (CAGR) of approximately 3.3% a year over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Dividend Has Limited Growth Potential

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Over the past five years, it looks as though Oceana Group's EPS has declined at around 12% a year. 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.

Oceana Group'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. While the low payout ratio is 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Oceana Group has 5 warning signs (and 1 which doesn't sit too well with us) 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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