Last update on 2024-06-27

Analog Devices (ADI) - Dividend Analysis (Final Score: 6/8)

Assessing the performance and stability of Analog Devices (ADI)'s dividend policy using an 8-criteria scoring system. Final Score: 6/8.

Short Analysis - Dividend Score: 6

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

Analog Devices (ADI) has been evaluated on its dividend performance using an 8-criteria system. Here's what we found: 1. **Dividend Yield**: ADI's yield has consistently outperformed the industry average, demonstrating strong income potential. 2. **Growth Rate**: The average annual dividend growth rate is high, at 36.485%, even if it's influenced by some outlier years. 3. **Payout Ratio**: With a 20-year average payout ratio of 53.46%, ADI is well within the sustainable range, though certain years did spike above the 65% threshold. 4. **Coverage by Earnings**: EPS growth shows strong profitability, covering dividends most years, albeit with occasional dips. 5. **Coverage by Cash Flow**: ADI consistently covers its dividends with free cash flow, showcasing healthy liquidity. 6. **Stable Dividends**: ADI has had a stable and increasing dividend for 20 years, indicating reliability in payouts. 7. **25 years of Dividends**: ADI has paid dividends for 21 years, which is slightly shy of the 25-year mark. 8. **Stock Repurchases**: Reliable stock repurchases over two decades suggest strong financial health and favorable capital allocation by ADI. Overall, ADI scores 6 out of 8 on the analysis system, indicating a solid record but missing a longer dividend history.

Insights for Value Investors Seeking Stable Income

Based on the analysis, Analog Devices (ADI) looks like a strong candidate for dividend-focused investors due to its consistent dividend yield, robust growth rate, and sustainable payout ratio. The company shows reliable financial management and a strong ability to cover dividends with both earnings and cash flow. However, potential investors should be mindful of the company's occasional payout spikes and the fact that it hasn't reached 25 years of consecutive dividend payments yet. Overall, ADI seems like a worthwhile stock to consider for its strong financial fundamentals and shareholder-friendly policies.

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?

Analysis of dividend yield: A high dividend yield can indicate that a company is sharing profits with shareholders, yet may also be a sign of lower stock price or future growth potential. Considering both the current dividend yield and its historical trend provides insight into company stability and shareholder value over time.

Analyzing Analog Devices' historical dividend yield reveals a consistent pattern of outperforming the industry average. For instance, ADI's yield has flaunted values as high as 4.10% in 2008 and maintained figures steadily above the sector's trend; even in 2023, ADI's 1.7325% remains superior to the industry's 0.65%. A higher dividend yield demonstrates robustness in income potential for shareholders. Another observation is the increase in dividend per share from $0.04 in 2003 to $3.44 in 2023, reflecting a growth-oriented dividend policy. Despite market fluctuations in ADI's stock price, the company ensured that dividend payouts sustained upward trajectories, indicating financial resilience. Overall, this trend is promising and suggests strong management and solid business fundamentals.

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

What is the Dividend Growth Rate criterion and why it is important to consider

In the last 20 years of data provided, we observe the following dividend rates per share: 0%, 450%, 63.6364%, 66.6667%, 20%, 8.3333%, 2.5641%, 7.5%, 12.7907%, 23.7113%, 13.3333%, 8.8235%, 8.1081%, 5%, 7.1429%, 6.6667%, 12.5%, 14.8148%, 11.2903%, 10.1449%, 13.1579%. From this data, we see considerable fluctuation in the dividend growth rates from year to year. The average over this period is 36.485%. While this value might be skewed by certain outliers (e.g., 450%), a consistent trend above 5% reflects a relatively healthy and growing dividend, which is a good indicator for investors seeking reliable income returns. Thus, sticking within higher bounds can pay off if the trend of higher growth can be sustained.

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

The payout ratio measures the proportion of earnings a company distributes to its shareholders as dividends. A payout ratio lower than 65% typically indicates sustainability, allowing the company to retain earnings for growth and buffer against economic downturns.

The 20-year average payout ratio for Analog Devices (ADI) stands at approximately 53.46%, which is comfortably below the threshold of 65%. This indicates a generally sustainable dividend policy. However, there were sporadic years where the payout ratio spiked above this threshold notably, 2009 at 94.51%, 2014 at 74.79%, 2015 at 72.75%, 2017 at 86.75% and 2021 at 78.90%. These deviations warrant closer examination to understand their context, whether due to earnings declines or dividend hikes. Nevertheless, the overall trend supports a positive evaluation regarding the sustainability of ADI's dividend payments.

Dividends Well Covered by Earnings?

This refers to the ability of a company's earnings to sufficiently cover dividend payments to its shareholders.

Analog Devices' earnings per share (EPS) show positive growth from $0.78 in 2003 to $6.60 in 2023, highlighting strong profitability improvement. Meanwhile, dividends per share (DPS) increased from $0.04 to $3.44, reflecting a commitment to returning value to shareholders. The dividend coverage ratios fluctuate, with key dips during 2003, 2005, 2008, and 2022, where respectively 5.13%, 33.28%, 29.47%, and 57.43% of earnings were used for dividends, indicating less coverage. However, recent values suggest better stability, with 2023 at 52.12%. This trend indicates prudent management, balancing reinvestment and shareholder returns. Despite occasional dips, the general upward trend in EPS and manageable DPS increases illustrate robust financial health and a likely sustainable dividend policy.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow ensures that a company has sufficient liquidity to maintain or grow its dividend payouts over time. It reflects on the company's financial health and sustainability of shareholder returns.

Analog Devices (ADI) has shown a reasonable to strong coverage of its dividends by free cash flow from 2003 to 2023. During this period, the company's coverage ratios mostly oscillated between 0.2 to 0.7, indicating that free cash flow consistently exceeded dividend payouts. For example, in 2018, the free cash flow was approximately $2.19 billion, covering around 32% of its $703.3 million dividend payout. By 2023, both figures grew, with free cash flow at about $3.56 billion and dividend payouts covered by 47.2%, showing an improved trend. This sustainable pattern is favorable as it indicates ADI’s growing capability to support and potentially increase its dividend payments over time, while maintaining sufficient cash reserves. Overall, this indicates a healthy trend, fostering investor confidence.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends over the past 20 years are important because it shows the company's commitment to returning profits to shareholders regardless of its financial performance, which is especially critical for income-seeking investors.

Analog Devices (ADI) has displayed remarkable stability in its dividend payments over the past two decades. The dividend per share has shown a consistent upward trajectory from $0.04 in 2003 to $3.44 in 2023. Notably, no year within this period witnessed a drop by 20%, validating its resilience and commitment to payouts despite market fluctuations and economic conditions. Fiscal prudence and robust cash flow management are evident, making this trend highly favorable for income-focused investors.

Dividends Paid for Over 25 Years?

Checking whether a company has paid dividends for over 25 years helps to determine its track record of returning capital to shareholders, which is a sign of financial health and stability.

Based on the provided data, Analog Devices has paid regular dividends for the past 21 years, starting from 2003. The initial dividend payout in 2003 was $0.04 per share, and it has generally increased annually to $3.44 per share in 2023. This upward trend is positive because it reflects Analog Devices' commitment to returning value to shareholders through consistent and increasing dividends, implying financial stability. However, since the company has not paid dividends for the entire 25-year period considered, it does not meet this specific criterion. Nonetheless, the trend over the 21 years is quite strong and likey to give confidence to investors regarding the company's dividend policy.

Reliable Stock Repurchases Over the Past 20 Years?

Explain the criterion for Analog Devices (ADI) and why it is important to consider

Reliable stock repurchases over two decades reflect a company's commitment to returning value to shareholders and can support share price stability. This practice is indicative of strong financial health and prudent capital allocation by management, implying that excess cash flow generated by the business is being utilized to buy back shares. This often signals confidence in the company's future prospects as it reduces the number of shares outstanding, effectively increasing earnings per share (EPS) and ownership stakes of existing shareholders.