Oracle (ORCL) raises dividend by 27% & offers good value within the tech sector.

Oracle’s (NYSE:ORCL) dividend was increased by 27%.  Its overall yield is 1.66%. The firm started paying a dividend in 2009.

Oracle is one of the largest software firms in the world. It provides software to global companies in application, hardware, and cloud infrastructure. The technology giant also offers three key areas within the cloud space including Platform, Software, and Infrastructure.  The firm also provides mobile computing and Java.  The firm is located in Redwood City, California and founded in 1977.

Oracle has maintained a three-year growth rate of dividends of 17 percent. Oracle currently ranks 3rd in dividend yield within the large cap services, technology, application software category. The quarterly dividend for the April payment will be $0.19 versus the prior year rate of $0.15 per share. Oracle is a member  of our Top 100 Dividend Stocks.  (see below).

top-100

The dividend will be paid at the new higher rate on April 26, 2017, to shareholders of record at close of business on April 12, 2017. Oracle Corp. is currently priced at $45.66. Listed in the table below are the quarterly dividend payments since 2010.

Date Quarterly Dividend
4/12/2017 0.19
1/3/2017 0.15
10/7/2016 0.15
7/1/2016 0.15
4/12/2016 0.15
1/4/2016 0.15
10/9/2015 0.15
7/6/2015 0.15
4/2/2015 0.15
1/5/2015 0.12
10/6/2014 0.12
7/7/2014 0.12
4/4/2014 0.12
1/3/2014 0.12
10/4/2013 0.12
7/10/2013 0.12
12/12/2012 0.18
10/10/2012 0.06
7/11/2012 0.06
4/9/2012 0.06
1/9/2012 0.06
10/7/2011 0.06
7/11/2011 0.06
4/11/2011 0.06
1/14/2011 0.05
10/4/2010 0.05
7/12/2010 0.05
4/12/2010 0.05
1/14/2010 0.05


Analysis of Oracle is based upon our five key criteria for the Top 100 list, which include;

Category Value Score
Dividend Yield 1.66% 320
Dividend Growth (3-7 year avg) 19.6% 89
Forward P/E 15.93 122
S&P Financial Rating AA- 40
Beta 1.05 150
Total Score 721
% Yield 3 Year Div. Growth Rate 7 Year Div. Growth Rate SPS 2016 P/S Ratio 10 yr P/S Low 10 yr P/S High 5 yr low Yield % 5 yr max Yield %
1.66% 17% 22% 9.25 4.94 3.60 5.90 0.73% 1.74%

Positives;

  • Oracle has paid out a dividend consecutively for the past 8 years.
  • Oracle maintains an investment grade rating of AA-.
  • Oracle has maintained a three-year growth rate of dividends of 17 percent.
  • Oracle’s current dividend yield (1.66%) is above its five-year average historical dividend yield.

Negatives;

  • Oracle’s dividend yield is below that of the S&P 500 Index.
  • Oracle maintains a beta of 1.05, higher than the average company.
  • Oracle is trading above its ten-year average price/sales (P/S) ratio.

Latest Earnings & Overall Analysis:

Oracle issued its earnings data on March 15th. The company reported $0.69 EPS for the quarter, topping the consensus estimate of $0.62.  The firm’s earnings for the fiscal third-quarter beat analysts’ expectations as software revenue rose sharply. Oracle reported revenue of $9.3 billion, which was above the consensus estimate of $9.2 billion. Revenue rose 3 percent year over year.  Oracle forecast revenue for the next quarter of down 1% to up 2%.  The firm also projected EPS of 78-82 cents in the next quarter.

In the quarter, cloud software revenue surged, rising by 73 percent.  Oracle is doing an excellent job of moving away from its primary database business to additional cloud computing and SaaS.  Cloud revenues now represent over 12 percent of the company’s total revenue.  This is nearly 9 percent higher than last year’s results.  The firm’s growth is through both internal an external methods. A big addition was last year’s NetSuite purchase.  NetSuite was bought for $9.3 billion and further pushed Oracle into the cloud arena.

With the purchase of NetSuite, Oracle is now better positioned to compete with leading cloud companies like Salesforce.com   Both Salesforce and Amazon are key players within the industry.   Salesforce generates over $10 billion in cloud service revenue. But Oracle’s own product suite including SaaS and PaaS are gaining strong traction.  Its IaaS segment is growing but faces dominant players like Microsoft, Amazon, and Google. Oracle hopes to balance out the strong growth from its cloud business with its older legacy operations.  

2016 2015 2014 2013 2012
Earnings per Share 2.61 2.77 2.87 2.68 2.46
Annual Dividend 0.6 0.51 0.48 0.3 0.24
Payout Ratio 22.99% 18.41% 16.72% 11.19% 9.76%
The database market is part of that legacy business and contributes over one-third of overall revenue. The positive for Oracle is this business is very sticky, where switching costs are elevated.  This business provides margins and a stable revenue stream.  The firm maintains a solid balance sheet and has a AA- rating from Standard and Poors. Its three-year growth rate in dividends is a stellar 17 percent.  However, there is much room for improvement as the company pays out only 23 percent of its earnings in dividends. Although that will rise this year, dividend investors can hope for further strong increases and a payout ratio closer to fifty percent.  Within the technology sector, there are few standout dividend stock candidates.  But Oracle, despite its lower than average dividend and low payout ratio, is one firm that has strong dividend increases and a solid balance sheet.  It also trades at a modest 15 times next year’s earnings.
Earnings per Share 2017 (projected) 2.75
Dividend 0.76
Payout Ratio 27.63%

Based on the firm’s consistent dividend growth, moderate P/E, and impressive financial credit rating, Oracle Corp. qualifies as one of our Top 100 Dividend Stocks

Oracle Corp. Dividend Yield Historical Chart (Click to enlarge)

Chart Explanation:  Dividend growth stocks may be viewed undervalued when the current yield is above historical readings for the past 5 years. 

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