SAP's Board Recommends 12% Dividend Hike for Shareholders

SAP SE’s SAP board has recommendeda dividend of €1.40 per share for 2017, which represents a 12% year-over-year hike. Based on the weighted average 1,197 million shares outstanding, this will amount to a total dividend outlay of approximately €1.67 billion, representing a pay-out ratio of 41% (assuming the shareholders approve the Board’s recommendation).

The dividend for 2017 is scheduled to be paid on or after May 22, 2018.

Additionally, SAP decided to pay 40% or more of after-tax profit as dividends from now on, which is higher than the earlier ratio of more than 35%.

The company’s operating cash flow improved 9% in 2017, growing for the third consecutive year.

With long-term value creation in mind, the company has undertaken consistent measures to enhance balance sheet strength. With a solid capital and liquidity position, the company is expected to continue enhancing shareholder value through efficient capital-deployment activities.

SAP’s debt/equity ratio of 0.20 compares unfavorably with the industry’s average of 0.08, which indicates a higher debt burden relative to the industry. However, the company displayed strong, consistent cash generation capabilities in recent years. Also, the company’s ROE of 17.6% is much higher than the industry average of 9.6%. This indicates that the company is more efficient in utilizing shareholder funds compared with peers.

Encouragingly, the company has a robust earnings surprise history, having posted an average surprise of 5.6% in the trailing four quarters and beating estimates all through. The company’s earnings surged 21% year over year in the recent quarterly results, riding on growth in the cloud subscriptions as well as software license order entry.

SAP’s resilient Cloud and Software business, an enviable business network spread and dominance over critical client demand areas continue to act as staple growth drivers. The company’s S/4HANA proved to be a solid profit yielder, fueled by an increase in cloud subscriptions as well as support revenues in recent times.

In January 2018, the company announced that it has inked an agreement to buy cloud-based human resources-software company — Callidus Software, Inc. CALD — for $2.4 billion. The buyout will give SAP access to new sales analytic and customer engagement tools.

However, there are some risks associated with investing in the stock. Dull prospects of the global IT industry in recent quarters along with flat customer spending projections have affected the company’s performance. Over the past few quarters, many of the company’s emerging markets have faced fiscal imbalances besides general economic slowdowns, which affected consumers’ purchasing power. Currency fluctuations in many of the company’s key markets are also hurting financial performance.

SAP’s shares have lost 2.2% in the last six months, against the 18.3% rally of its industry.

 

SAP carries a Zacks Rank #4 (Sell) as we believe its short-term risks outweigh its strengths.

Stocks to Consider

Some better-ranked stocks in the same space include GTT Communications, Inc. GTT and DXC Technology Company DXC, both carrying a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

GTT Communications has a solid earnings surprise history for the trailing four quarters, having beat estimates thrice for an average of 101.1%.

DXC Technology generated four strong beats during the same time frame, for an average positive surprise of 23.9%.

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