The oft-cited first sentence of this work
Why would you not just use two words, oft cited?
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Oft-cited is a phrasal adjective (a/k/a compound modifier). Because "oft" and "cited" must be interpreted together in order to precisely convey the intended meaning, the hyphen is placed between them to tie them together and prevent any mistaken interpretation of them as two separate modifiers.
"Oft," like "often," is an adverb and requires no hyphenation when it modifies an adjective. In the phrase, "The oft-cited first sentence of this work," the hyphen introduces no clarity because "oft," an adverb, cannot modify anything here but "cited," an adjective—and a hyphen that doesn't introduce clarity is superfluous and is certainly not needed.
The latter two distinctions suggested by jwpat7 are nonsense and cannot possibly be considered in this construction. He seems to be under the impression that "oft" is an adjective and could be construed as modifying "cited first sentence" or "first sentence" alone, neither of which is possible. Adverbs do not modify nouns.
More simply put: never use a hyphen between an adverb and an adjective. Modifying adjectives is part of adverbs' job. Hyphens are for when adjectives act like adverbs and modify other adjectives.