Last update on 2024-06-27

Oracle (ORCL) - Dividend Analysis (Final Score: 6/8)

Analyze Oracle (ORCL) dividend policy with an 8-criteria scoring system. Oracle achieved a high score of 6/8, showcasing dividend reliability and performance.

Short Analysis - Dividend Score: 6

We're running Oracle (ORCL) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

Oracle (ORCL) has a solid dividend yield of 1.4417%, which is higher than the industry average. Its dividend yield has mostly surpassed the industry's over the last 20 years. Oracle's dividend growth rate averaged about 14.92% over this period, but with some noticeable swings, making its stability moderate. The company's average payout ratio is a low 21.60%, indicating sustainable dividends. Both earnings and cash flow have comfortably covered the dividends, though there were tighter periods. Oracle has increased its dividends since it started paying them in 2009, showing a stable trend. However, Oracle does not meet the 25-year track record for dividend payments, only maintaining this for 14 years. Stock repurchase has been consistent, improving EPS and driving potential stock price increases.

Insights for Value Investors Seeking Stable Income

Oracle's strong dividend yield, low payout ratio, and stable dividend payments since 2009 make it a good investment for those interested in dividend income. Despite not having a 25-year payment history, Oracle's other strong points, like consistent stock repurchases and sustainable payouts, suggest it is worth considering for long-term investment. However, investors should keep an eye on the dividend growth rate stability and free cash flow to ensure continued reliability.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price.

Oracle (ORCL) has a dividend yield of 1.4417%, which is significantly higher than the industry average of 0.4%. Over the last 20 years, Oracle's dividend yield has generally been higher than the industry average, veering above 1% in recent years. For instance, in 2013, the dividend yield was 1.0674%, while the industry average was just 0.21%. This trend indicates a strong and consistent return to shareholders in the form of dividends, which is a positive sign for those looking for income investments.

Average annual Growth Rate higher than 5% in the last 20 years?

Explain the criterion for Oracle (ORCL) and why it is important to consider

Over the last 20 years, Oracle's dividend growth rate has exhibited significant variability. Analyzing the Dividend Per Share Ratio from 2003 to 2023, we observe that Oracle began paying dividends in 2009, indicating zero values for prior years. Post-2009, particularly in 2012 (82.6087%), and 2014 (100%), we see sharp increases, but also volatile drops, e.g., -42.8571% in 2013. Recent years show growth closer to 5%, such as 5.2632% (2016) and 5.5556% (2018), falling short of sustained high growth. The average dividend growth rate over this period stands at approximately 14.92%, which exceeds 5%. However, volatility is a risk factor here due to large swings—both positive and negative—in the dividend growth rate. This pattern raises concerns about stability despite the higher average, a trending line rather than individual spikes reveal their sustainability.

Average annual Payout Ratio lower than 65% in the last 20 years?

The criterion assesses whether Oracle's average payout ratio over the past 20 years has remained below 65%. A lower payout ratio suggests that the company retains a higher portion of earnings for reinvestment and growth, which can be a sign of sustainable dividend payments.

Oracle's average payout ratio over the last 20 years is 21.60%, which is significantly lower than the threshold of 65%. Notably, Oracle has had years with exceedingly low payout ratios, with several years at 0% and others generally staying well below the 65% mark. However, 2018 stands out with an abnormally high payout ratio of 84.21%, which indicates a one-time event affecting dividend policy. Despite this outlier, the overall low average payout ratio reflects a disciplined approach toward dividend payments, suggesting that Oracle is likely ensuring ample funds for reinvestment into the business while maintaining sustainable payouts to shareholders. This trend is favorable for long-term sustainability and signifies a potential for future dividend stability and growth.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings

Oracle's (ORCL) earnings per share (EPS) and dividend per share (DPS) data from 2003 to 2023 indicate a trend where dividends are well covered by earnings. Specifically, the ratio of dividends per share covered by earnings oscillated but consistently remained well above 100% post-2008, reinforcing the robustness of Oracle's ability to sustain dividend payments. Such coverage is positive for income-seeking investors as it implies that the dividends are well-funded by the company's earnings, reducing the risk of dividend cuts in economic downturns.

Dividends Well Covered by Cash Flow?

Dividends Well Covered by Cash Flow evaluates how comfortably a company can cover its dividend payments with the cash generated from its operations. It's important as it indicates the sustainability of dividend payouts without compromising the business's financial health.

Oracle's Free Cash Flow (FCF) has seen fluctuations over the years, peaking at $14.34 billion in 2014 and dropping to $5.03 billion in 2022 before slightly recovering to $8.47 billion in 2023. Despite such variability, the company maintained a relatively stable and increasing dividend payout, reaching $3.67 billion by 2023. The Dividend Coverage Ratio, which demonstrates the percentage of FCF allocated to dividend payments, ranged from around 4% in 2010 to over 68% in 2022, before stabilizing to 43.31% in 2023. This indicates that Oracle generally has ample cash flow to cover its dividends, suggesting strong financial health with a few periods of higher payout ratios during lower FCF. However, the sharp increase in the dividend coverage ratio in 2022 highlights the necessity for careful monitoring should free cash flow decline further.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments, where the dividend per share did not drop by more than 20% over the past two decades, is of utmost importance for income-seeking investors.

Oracle's dividend per share has shown an overall upward trend over the past 20 years. Starting from 0 in 2003, Oracle began paying dividends in 2009 with a dividend per share of $0.15. Since then, the company has steadily increased its dividend payments, reaching $1.52 in 2023. Throughout this period, there is no year where the dividend dropped by more than 20%. This consistent and upward trend is highly positive for income-seeking investors as it signifies the company's financial stability and commitment to returning value to shareholders. Therefore, Oracle meets the criterion of stable dividends over the past 20 years, which is a very favorable indicator for investors focusing on dividend income.

Dividends Paid for Over 25 Years?

Track Record (25 years of Dividend Payments): This criterion assesses whether the company has consistently paid dividends for at least 25 years, showing stability and commitment to returning capital to shareholders.

Based on the given data from 1998 through 2023, it is evident that Oracle (ORCL) initiated dividend payments in 2009. For the first 11 years (1998-2008), the company made no dividend payments, but from 2009 onwards, Oracle has consistently paid and even increased its dividends. Consequently, Oracle does not meet the 25-year track record of dividend payments as it has been paying dividends only for the past 14 years. This might raise red flags for long-term value-focused investors who prioritize a stable, long-term dividend payment history because a consistent 25-year record is often seen as a mark of financial stability and reliability.

Reliable Stock Repurchases Over the Past 20 Years?

Explain the criterion for Oracle (ORCL) and why it is important to consider

The criterion of reliable stock repurchases over the past 20 years assesses Oracle's consistency in buying back its shares. This consistency is indicative of strong financial health and suggests a commitment to returning value to shareholders. The data shows years of notable repurchases, reducing the share count from 5.42 billion in 2003 to 2.69 billion in 2023. This trend is good as it enhances Earnings Per Share (EPS) and can drive stock price appreciation.