Open Text Corporation (NASDAQ:OTEX): What You Have To Know Before Buying For The Upcoming Dividend

Important news for shareholders and potential investors in Open Text Corporation (NASDAQ:OTEX): The dividend payment of US$0.15 per share will be distributed into shareholder on 21 September 2018, and the stock will begin trading ex-dividend at an earlier date, 30 August 2018. Is this future income stream a compelling catalyst for dividend investors to think about the stock as an investment today? Let’s take a look at Open Text’s most recent financial data to examine its dividend characteristics in more detail.

See our latest analysis for Open Text

5 checks you should do on a dividend stock

Whenever I am looking at a potential dividend stock investment, I always check these five metrics:

• Is its annual yield among the top 25% of dividend-paying companies?

• Does it consistently pay out dividends without missing a payment of significantly cutting payout?

• Has dividend per share risen in the past couple of years?

• Is its earnings sufficient to payout dividend at the current rate?

• Based on future earnings growth, will it be able to continue to payout dividend at the current rate?

NasdaqGS:OTEX Historical Dividend Yield August 27th 18

How well does Open Text fit our criteria?

Open Text has a trailing twelve-month payout ratio of 60.2%, which means that the dividend is covered by earnings. However, going forward, analysts expect OTEX’s payout to fall to 22.3% of its earnings, which leads to a dividend yield of around 1.7%. However, EPS should increase to $1.26, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.

Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. Unfortunately, it is really too early to view Open Text as a dividend investment. It has only been consistently paying dividends for 5 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.

Compared to its peers, Open Text generates a yield of 1.6%, which is high for Software stocks but still below the market’s top dividend payers.

Next Steps:

If Open Text is in your portfolio for cash-generating reasons, there may be better alternatives out there. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. There are three essential aspects you should further research:

1. Future Outlook: What are well-informed industry analysts predicting for OTEX’s future growth? Take a look at our free research report of analyst consensus for OTEX’s outlook.

2. Valuation: What is OTEX worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether OTEX is currently mispriced by the market.

3. Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.