How Is Oracle Funding Its Dividends and Share Buybacks?



Oracle spent $2 billion on share buybacks in fiscal 3Q15

As we saw previously in this series, Oracle (ORCL) spent $2 billion in share buybacks in fiscal 4Q15. It also announced a dividend payment of $0.15 per share. However, like a regular tech company, Oracle has decent cash reserves and moderate debt. It continues to struggle with flattish or revenue degrowth like other legacy technology peers.

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Oracle issued bonds to fund share buybacks and dividends

In the absence of revenue growth to lure investors and shareholders, companies tend to resort to share buybacks and rising dividend payments. Oracle is employing a similar strategy. In its 3Q15 earnings release, the company’s board of directors announced that they raised the quarterly dividend payout from $0.12 per share to $0.15 per share—the first time since 2013. This was a rise of 25%.

In April 2015, Oracle issued six-part $10 billion notes. The maturities ranged from seven to 40 years. In a regulatory filing, Oracle stated that the use of the proceeds “may include stock repurchases, payment of cash dividends on our common stock and future acquisitions.” In its 1Q15 results, Oracle announced the addition of $13 billion to its buyback plan.

Oracle’s bond sale is the fourth largest deal in 2015. Actavis, AT&T (T), and Microsoft (MSFT) made the largest bond sales in early 2015. In April 2015, AT&T sold $17.5 billion worth of bonds to finance its DIRECTV deal.

The prevalence of low interest rates combined with the urge of companies to use cash to finance mergers and acquisitions, share buybacks, or dividends has led companies to borrow at a rapid rate. Also, US corporate debt was among the best-performing categories of fixed income in 2014. Concerns regarding global growth have subdued bond yields.

The above chart showed the largest global corporate debt sales in 2014. Medtronic is a medicine device manufacturer. It topped the list. It’s followed by Apple and Numericable Group—a cable operator. According to the Wall Street Journal, the largest corporate bond sale recorded to date happened in September 2013 when Verizon Communications (VZ) sold $49 billion.

If you’re bullish about Oracle, you can invest in the PowerShares QQQ Trust (QQQ) and the Technology Select Sector SPDR Fund (XLK). QQQ and XLK invest about 3.08% and 3.41% of their holdings in Oracle.


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