Last update on 2024-06-27

AAON (AAON) - Dividend Analysis (Final Score: 4/8)

Discover the comprehensive dividend analysis of AAON (AAON), grading its dividend policy on an 8-criteria system. Learn about dividend yield, growth, and stability.

Short Analysis - Dividend Score: 4

We're running AAON (AAON) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

The dividend analysis evaluates AAON's dividend performance using an 8-criteria score. AAON scores a 4, showing mixed performance. Their dividend yield is low compared to the industry average, and the growth rate over 20 years is volatile. While their dividend payout ratio is low indicating good earnings retention, higher EPS doesn't consistently cover dividends. Stability in dividends is evidenced by no drops over 20%, but they haven't paid dividends for 25 years (only 16). Reliable stock repurchases indicate management's confidence, despite recent increases in outstanding shares.

Insights for Value Investors Seeking Stable Income

Given AAON's mixed performance, they may not be the best choice for income-focused investors seeking high yield and long-term stability. However, their strong reinvestment strategy and reasonable payout ratio suggest potential for capital growth, making it worth monitoring for growth-oriented investors.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield is a financial ratio that indicates how much a company pays out in dividends each year relative to its stock price. It is a crucial measure for income-focused investors as it signifies the cash return on investment in a stock, exclusive of capital gains. A higher dividend yield may attract more investors looking for steady income.

The dividend yield for AAON (0.4332%) is notably lower than the industry average of 5.78%. Historically, AAON's dividend yield has been volatile, showing a gradual decline since its peak of 1.847% in 2009. Despite rising dividend per share values, the increase in AAON's stock price has significantly outpaced the growth in dividend payments, resulting in a lower yield. This downward trend is generally unfavorable for income-focused investors who might seek higher yields elsewhere. However, this could indicate that the company is focusing more on reinvesting earnings for future growth or capital appreciation.

Average annual Growth Rate higher than 5% in the last 20 years?

The Dividend Growth Rate criterion evaluates the rate at which a company's dividend payments have increased over a specified period. A growth rate of 5% or higher is often considered healthy and can signal a company's strong financial performance and commitment to returning value to shareholders.

Analyzing the dividend per share ratio for AAON (AAON) over the last 20 years reveals a rather volatile pattern with several years of zero or negative growth. Between 2008 and 2023, years such as 2008, 2010, 2013, 2014, and 2015 exhibit robust dividend growth. However, there are also notable periods of decline and zero payouts. Specifically, instances like 2013 (-30.5625) and 2021 (-16.6579) stand out as periods of negative growth. Despite an average dividend growth ratio of 8.53%, the inconsistency and periods of negative growth suggest caution. Given the significant fluctuations, it's difficult to conclude a stable trend of 5% or higher growth in dividends year-over-year. Therefore, while the overall average growth rate is positive, the erratic annual changes indicate an unstable dividend growth, which may concern long-term investors.

Average annual Payout Ratio lower than 65% in the last 20 years?

The average payout ratio is an important metric because it indicates the percentage of earnings distributed to shareholders as dividends. A lower payout ratio generally suggests that the company retains a higher portion of its earnings for growth, operations, and debt obligations.

AAON has managed an impressive average payout ratio of approximately 24.33% over the last 20 years. This figure is well below the 65% benchmark, showing that the company has consistently retained a significant portion of its earnings for reinvestment or other operational needs. This low payout ratio is generally seen as a positive trend because it indicates a sustainable dividend policy and room for future growth. The consistency in maintaining a low payout ratio, particularly in a fluctuating economy, reflects prudent financial management and a focus on long-term value creation for shareholders.

Dividends Well Covered by Earnings?

Dividends are well covered by earnings if the Earnings per Share (EPS) comfortably exceed the Dividend per Share (DPS). This ratio signifies financial stability and ensures the company's capability to sustain dividend payouts.

Over the years, the Earnings per Share (EPS) of AAON has generally increased, reflecting the company's growth and profitability. For instance, EPS has climbed from $0.2121 in 2003 to $2.1887 in 2023. However, the dividend coverage ratio, which measures the fraction of EPS over DPS, indicates some fluctuations. While in the initial years (2003-2005) the company did not pay any dividends, the situation changed in 2006 when it began distributing dividends but with relatively low coverage values. The coverage improved significantly in the years such as 2012 (0.323) and earlier 2013 (0.109), but this was still low. More recently, the coverage in 2022 stood at 0.227 which translates to reduced financial flexibility considering the increased dividend payouts vis-a-vis EPS. This volatility in the ratio suggests that although AAON is growing, its dividends are not consistently well-covered by earnings, which could be concerning for dividend-reliant investors. Overall, the trend is mixed, indicating a need for careful consideration regarding the company's dividend sustainability strategy.

Dividends Well Covered by Cash Flow?

Explain the criterion for AAON (AAON) and why it is important to consider

A key measure when evaluating dividend sustainability is whether a company's dividends are well covered by its free cash flow. Free cash flow is the cash generated by the business after accounting for capital expenditures, and it reflects the company's ability to generate cash organically. If dividends are not adequately covered by free cash flow, it might result in the company having to take on debt or cut dividends in the future, which is undesirable for investors.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments, where the dividend per share did not drop by more than 20% over the past two decades, is of utmost importance for income-seeking investors.

AAON (AAON) has demonstrated a fairly stable dividend history over the past 20 years. The dividend per share only began in 2007 and since then, it has shown an upward trend with some minor fluctuations. Importantly, there's no year where the dividend per share dropped by more than 20%, showcasing good stability. This stability is a positive factor for income-seeking investors as it suggests reliability in future dividend payments. For instance, even during challenging years, dividends such as in 2011 remained flat rather than decreasing, and higher dividends in subsequent years further bolster investor confidence.

Dividends Paid for Over 25 Years?

Reviewing 25-year dividend payment history tells us about a company's long-term commitment to returning value to shareholders. It demonstrates financial stability and management's confidence in sustainable profits.

According to the data provided, AAON has been paying dividends consistently for the past 16 years, starting in 2007. They didn't pay dividends from 1998 to 2006. However, since 2007, the dividend per share has generally shown an upward trend, increasing from $0.079 per share in 2007 to $0.32 per share in 2023. What's notable is the resilience and growth of dividends through various economic cycles. While not yet meeting the 25-year mark, the trend is positive and indicates a solid dividend policy.

Reliable Stock Repurchases Over the Past 20 Years?

reliable stock repurchases over the past 20 years

AAON has demonstrated a consistent trend in repurchasing its outstanding shares over the last two decades. The firm has engaged in stock buybacks in 14 out of the 20 years (2004-2018). For instance, from 2003 to 2013, outstanding shares dropped from around 67 million to approximately 55 million. The average repurchase rate over this time frame was 2.239%, which indicates a moderately aggressive approach to share buybacks. This trend is generally positive as share repurchases can signal management's confidence in the firm’s future and are often an effort to return value to shareholders. Nevertheless, the increase in the number of shares since 2019 (from 78 million to 81 million by 2023) could indicate a shift in the company's capital strategy, warranting a closer examination of the firm's recent financial policies.