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Oceania Healthcare (NZSE:OCA) Has Announced That It Will Be Increasing Its Dividend To NZ$0.023

Oceania Healthcare Limited (NZSE:OCA) has announced that it will be increasing its dividend on the 21st of June to NZ$0.023, which will be 9.5% higher than last year. This will take the dividend yield from 4.2% to 4.2%, providing a nice boost to shareholder returns.

See our latest analysis for Oceania Healthcare

Oceania Healthcare's Earnings Easily Cover the Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, Oceania Healthcare's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

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Over the next year, EPS is forecast to expand by 1.0%. If the dividend continues along recent trends, we estimate the payout ratio will be 53%, which is in the range that makes us comfortable with the sustainability of the dividend.

historic-dividend
historic-dividend

Oceania Healthcare's Dividend Has Lacked Consistency

The track record isn't the longest, but we are already seeing a bit of instability in the payments. Since 2018, the first annual payment was NZ$0.042, compared to the most recent full-year payment of NZ$0.044. This implies that the company grew its distributions at a yearly rate of about 1.2% over that duration. 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.

Dividend Growth Is Doubtful

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's not great to see that Oceania Healthcare's earnings per share has fallen at approximately 7.1% per year over the past five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

Oceania Healthcare's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Oceania Healthcare's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Oceania Healthcare is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 3 warning signs for Oceania Healthcare that you should be aware of before investing. Is Oceania Healthcare not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.