Oracle Corp (NYSE:ORCL) is set to report its quarterly results on March 11, and investors are eyeing the possibility of a dividend hike based on the company’s strong free cash flow (FCF) margins. This analysis explores Oracle’s recent financial performance, its potential for a dividend increase, and why it’s attractive to value investors.

Strong Free Cash Flow Growth

Oracle has demonstrated impressive growth in its trailing 12-month (TTM) free cash flow, with an 88% increase over the prior six quarters. This growth has been driven by the company’s increasingly profitable cloud business, resulting in a TTM FCF margin of 19.6%. This trend is expected to continue, leading to higher dividends and a positive impact on the stock price.

Likelihood of Dividend Hike

With its dividend payout representing only 65% of its free cash flow, Oracle has ample room to increase its dividend. Historically, the company has raised its dividend every four quarters, signaling a potential hike soon. Based on its recent FCF growth, analysts anticipate a dividend increase of 20% to 25%, translating to a higher dividend yield for investors.

Appeal to Value Investors

A potential dividend hike and Oracle’s current attractive valuation metrics make the stock appealing to value investors. At today’s price, the projected dividend yield could provide additional income for investors seeking steady returns. Furthermore, value investors can capitalize on shorting out-of-the-money options to generate extra income, taking advantage of short-term trading opportunities.

Shorting OTM Puts for Income

Investors can consider shorting out-of-the-money options with attractive yields for immediate income. For example, options with strike prices below the current stock price offer immediate yields of over 2%, providing a source of additional income. By repeating this strategy over several expiration periods, investors can generate significant returns while managing downside risks.

Conclusion

Oracle’s potential dividend hike, strong free cash flow growth, and attractive valuation metrics present an enticing opportunity for value investors. With the possibility of additional income from shorting OTM put options, investors can benefit from both dividend yields and short-term trading strategies. Despite potential risks, Oracle’s long-term prospects and financial stability make it a compelling investment choice in the current market environment.

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