Heading into Monday afternoon’s fiscal first quarter earnings report, Oracle is looking for a story to tell investors that could get them excited. Analysts anticipate almost no revenue growth this fiscal year, despite company executives’ frequently touting of Oracle’s cloud business and telling investors it can deliver cheaper cloud-computing services than Amazon Web Services and Microsoft Azure.
“We think we have performance and cost advantages,” founder and Chairman Larry Ellison told analysts on a 2017 earnings call.
But Oracle’s problem isn’t limited to growth-oriented investors. It’s also providing little to entice those seeking more conservative returns from dividends.
Oracle last raised its dividend in March 2017, from 15 cents to 19 cents a share. That currently represents a 1.6 percent dividend yield, the ratio a company pays out in annual dividends relative to its stock price.
Across the legacy tech landscape, investors have come to expect more, even from companies that are also generating better share price returns. IBM pays a 4.2 percent dividend yield, Qualcomm pays out 3.3 percent, Cisco is just under 3 percent and Intel and Texas Instruments are both over 2 percent. Microsoft is about inline with Oracle.
“Right now they’re stuck between a growth story and an income story,” said Michael Cuggino, president and portfolio manager at The Permanent Portfolio Family of Funds, which oversees about $2.5 billion and doesn’t own Oracle shares. “Paying only 1.5 percent isn’t making the argument to income investors. I don’t think they want to think of themselves as an income story.”
Oracle declined to comment.
Analysts polled by FactSet expect Oracle to bump up its dividend by a penny to 20 cents in Monday’s report and then again to 22 cents in mid-2019. If there’s no additional stock appreciation, a 22-cent payout would represent only a 1.8 percent yield.
Oracle, which had $67.3 billion in cash and marketable securities as of its last earnings report, has been spending money in other ways, including $11.3 billion for stock repurchases in the latest fiscal year, up from $3.6 billion the prior year.
And, in keeping with Ellison’s longtime strategy, the company has not been shy with acquisitions. In December, Oracle said it was buying construction management software maker Aconex for $1.2 billion. In 2016, it dropped $9.3 billion for NetSuite, a cloud-based business management software company (which happened to count Ellison as its largest shareholder).
“Oracle will likely need to constantly acquire businesses to transform and grow, and we don’t know whether or not they’ll be wise stewards over the capital they spend trying to achieve that growth,” Brian Yacktman, chief investment officer and portfolio manager of YCG Investments, told CNBC in an email. “But so far, after all that spend, they still have no growth to show for it, and that’s never a good sign.”
What’s more, acquisitions don’t always work.
“My fear is that in their attempts to reinvent the company, you risk them making a dumb acquisition and essentially burning the cash flow, in which case I’d rather get the dividend and reinvest it myself,” wrote Yacktman, whose firm doesn’t hold Oracle shares.
Over a longer time frame, Oracle’s stock has gone up, though less than the broader market. It’s risen 22 percent over two years, 31 percent over three years and 50 percent over five years. The S&P 500 rose 37 percent, 49 percent and 72 percent, respectively, over those periods.
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