The board of Oxford Industries, Inc. (NYSE:OXM) has announced that it will be increasing its dividend on the 30th of July to US$0.42. This makes the dividend yield about the same as the industry average at 1.3%.
Oxford Industries' Distributions May Be Difficult To Sustain
Solid dividend yields are great, but they only really help us if the payment is sustainable. While Oxford Industries is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. This gives us some comfort about the level of the dividend payments.
Looking forward, earnings per share could 35.4% over the next year if the trend of the last few years can't be broken. While this means that the company will be unprofitable, we generally believe cash flows are more important, and the current cash payout ratio is quite healthy, which gives us comfort.NYSE:OXM Historic Dividend June 19th 2021
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2011, the first annual payment was US$0.44, compared to the most recent full-year payment of US$1.48. This works out to be a compound annual growth rate (CAGR) of approximately 13% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.
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 Oxford Industries' EPS has declined at around 35% a year. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.
Oxford Industries' Dividend Doesn't Look Sustainable
Overall, we always like to see the dividend being raised, but we don't think Oxford Industries will make a great income stock. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We don't think Oxford Industries is a great stock to add to your portfolio if income is your focus.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 2 warning signs for Oxford Industries that investors should take into consideration. We have also put together a list of global stocks with a solid dividend.
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