Yahoo Finance Open Text (NASDAQ:OTEX) Is Increasing Its Dividend To $0.243
Open Text Corporation (NASDAQ:OTEX) will increase its dividend from last year's comparable payment on the 23rd of September to $0.243. This makes the dividend yield 2.5%, which is above the industry average.
Check out our latest analysis for Open Text
Open Text's Earnings Easily Cover The Distributions
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Open Text's dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.
Over the next year, EPS is forecast to expand by 31.8%. If the dividend continues on this path, the payout ratio could be 52% by next year, which we think can be pretty sustainable going forward.
Open Text Doesn't Have A Long Payment History
It is great to see that Open Text has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. Since 2013, the annual payment back then was $0.30, compared to the most recent full-year payment of $0.972. This implies that the company grew its distributions at a yearly rate of about 14% over that duration. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.
Dividend Growth Potential Is Shaky
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, things aren't all that rosy. Earnings per share has been sinking by 18% over the last five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.
Our Thoughts On Open Text's Dividend
Overall, we always like to see the dividend being raised, but we don't think Open Text will make a great income stock. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 2 warning signs for Open Text that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield 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.
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