Oracle: The Dividend Growth Stock Your Portfolio Needs (NYSE:ORCL)


justin sullivan


As an investor focused on dividend growth, I am constantly on the lookout for additional income-generating assets. On some occasions, I add stocks to my existing positions. In other circumstances, I create new positions to further diversify or take advantage of an attractive valuation and a history of growth. 2022 has begun with high volatility, and despite the rally of the last two months, there are always interesting investments.

My dividend growth portfolio lacks exposure to the information technology sector. There are two reasons for this. The first is that many companies in this sector are still expensive. Second, paying dividends in the information technology sector is still not as common as in other segments. This article will analyze Oracle (NYSE: ORCL), a company that seems reasonably valued and pays a growing dividend.

I will analyze the company using my dividend growth stock analysis methodology. I use the same method to make it easier to compare searched companies. I will examine the fundamentals, valuation, growth opportunities and risks of the business. I will then try to determine if it is a good investment.

Seeking Alpha’s business overview shows that:

Oracle Corporation provides products and services that address enterprise computing environments worldwide. Its Oracle cloud software as a service offering includes various cloud software applications. The company also offers cloud-based industry solutions for various industries, Oracle application licensing, and Oracle licensing support services. Additionally, it provides cloud infrastructure and enterprise licensing technologies, such as Oracle Database, an enterprise database; Java, a software development language; and middleware, including developer tools and the like.


Oracle has suffered from significant stagnation over the past decade. The company had its legacy software and hardware. However, he struggled to find new avenues of growth. The company has decided to focus on its cloud offering, where it offers both infrastructure and core software solutions. Therefore, despite sales growth of 15% over the past decade, the company is more optimistic. Over the last twelve months, sales have increased by 5% and 7% at constant exchange rates, with cloud being the main driver of growth. Going forward, analyst consensus, as seen on Seeking Alpha, expects Oracle to continue to grow sales at an annual rate of around 10% over the medium term.

ORCL turnover (TTM) given by Y-Charts

The company’s EPS (earnings per share) grew much faster. The chart below shows non-GAAP EPS that has increased nearly 20% over the past decade. Yet non-GAAP EPS shows an 82% increase in EPS. The combination of sales growth and aggressive buybacks fueled EPS growth. Going forward, analyst consensus, as seen on Seeking Alpha, expects Oracle to continue to grow EPS at an annual rate of around 12% over the medium term.

Diluted ORCL EPS (TTM) given by Y-Charts

The dividend here is very attractive. I will start by stating that the current dividend is safe and that a dividend cut is unlikely. The current payout ratio is only 52% using GAAP earnings and 24% using non-GAAP EPS. The company has raised the dividend nine years in a row and has never cut it since it launched it 13 years ago. The current yield is low at 1.6%, but there is plenty of room for growth despite the fact that the dividend has almost tripled over the past ten years.

Investors should expect a double-digit growth rate over the medium term, which is in line with the company’s EPS growth rate. According to the cash flow statement, as seen on Seeking Alpha, the company’s dividend cost was $3.4 billion last year, and free cash flow was over $10 billion during of the past nine years. Therefore, the company has room for dividend growth and a sufficient margin of safety even if free cash flow declines due to a recession. Investors who buy Oracle will have very positive long-term dividend prospects.

ORCL Dividend given by Y-Charts

In addition to dividends, Oracle returns capital to shareholders through buyouts. These share buyback programs support EPS growth as they reduce the number of shares outstanding. Buyouts are more effective as the business grows, so they can supplement EPS growth by using excess cash. Oracle used its money for buyouts even when it was struggling to grow, which is risky because growth can require capital. Yet the company has reduced the number of shares outstanding by nearly 45% over the past decade, which has contributed significantly to EPS growth.

ORCL shares outstanding given by Y-Charts


Oracle’s P/E (price to earnings) ratio is 15 based on expected EPS for the next twelve months. As can be seen in the chart below, it is below the average valuation we have seen over the past twelve months. The current valuation is close to the low of the previous year, which was close to 12. Therefore, paying 15 times the earnings of a company with decent growth seems reasonable.

ORCL PE ratio (before) given by Y-Charts

The chart below from Fastgraphs also implies that Oracle’s valuation is at least reasonable, if not attractive. The average P/E ratio for Oracle over the past two decades was 16.2. During these twenty years, EPS has increased by 13% per year. The currently expected growth rate is in line with historical growth, while the valuation is somewhat lower. As a result, Oracle shares look slightly attractive relative to their historical valuation.

Fastgraphs analysis

Quick graphics

To conclude, despite some stagnation, Oracle has solid fundamentals. Growth in sales and EPS leads to increased dividends and redemptions. Also, unlike some of its IT peers, these fundamentals have a decent valuation. Paying 15 times earnings for a company that shows appropriate growth and rewards shareholders with consistent dividends sounds promising.


Oracle’s most significant growth opportunity is its focus on the cloud business and refinement of its offering. The company offers cloud infrastructure like Amazon (AMZN), Alphabet (GOOG) (GOOGL), Microsoft (MSFT) and others. It also provides its unique software in cloud-native SaaS versions allowing it to offer a complete solution to many businesses. In the last quarter, cloud infrastructure grew by 36% and the company intends to continue investing in this high growth engine.

Another interesting move by Oracle is the acquisition of Cerner for $28.3 billion. Cerner provides health information technology services, devices and materials. Its products were used in more than 27,000 installations worldwide. While Oracle struggles to compete with the cloud giants, this acquisition will facilitate the offer of a specific complete solution for healthcare establishments.

Execution is another reason investors are bullish on Oracle. Oracle is led by an experienced team that has a proven track record of execution. When I analyzed Oracle a year ago, analysts expected the current year to end with EPS of $4.6. The year ended with EPS of $4.9. Management is successfully implementing its strategic growth plan and has already started to exceed expectations.


Competition is a significant risk for Oracle. Oracle has a tiny 2% market share in the cloud business it intends to grow. The three largest cloud providers, Amazon, Microsoft and Alphabet, hold around two-thirds of the market. Therefore, it may be very difficult for Oracle to become a top vendor, as even the current double-digit growth will not be enough to gain significant market share, putting Oracle at risk against these giants.

A recession is a short-term risk for Oracle. To grow by riding the wave of cloud migration, Oracle needs companies to continue to invest heavily in IT. If we see a recession, less investment will be made by potential customers. Therefore, we will see slower cloud adoption, and the current expected growth rate may decrease as growth will take longer.

Another risk is the higher level of indebtedness that Oracle faces. Oracle’s acquisition of Cerner is just one example of a transaction that required increased debt. The debt level is above 3, and this will limit the company’s ability to continue to grow through acquisitions. Additionally, the company will also face higher interest charges as the Federal Reserve raises interest rates.

While debt can be a burden if Oracle tries to acquire other companies, it doesn’t jeopardize current growth, which is mostly organic. Additionally, dividend growth investors should not worry about the security of the dividend due to debt. The company has paid off between $2.5 billion and $8.25 billion in debt each year for the past five years. The company has issued debt to fund acquisitions like Cerner, but with free cash flow growing and typically crossing the $10 billion mark, the company has more than enough resources to maintain the dividend, pay interest and reduce its debt level after the acquisition.


Oracle isn’t the first name that comes to mind when you think of big tech. However, this giant company is constantly growing and delivering better results to its shareholders. Growth fuels dividends and buyouts as Oracle prioritizes sharing its success with its shareholders and its R&D investments.

Oracle offers investors a wide range of services. From infrastructure to SaaS applications that run on top of infrastructure. There are also several risks, mainly the fierce competition in the cloud space. However, at 15x forward earnings, I think there is enough headroom and the market will reward any controversial growth story. Therefore, it is a BUY.


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