Last update on 2024-06-27

Adtran (ADTN) - Dividend Analysis (Final Score: 4/8)

Review of Adtran's (ADTN) dividend performance using an 8-criteria scoring system, scoring 4/8 in overall stability and performance.

Short Analysis - Dividend Score: 4

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

1. Dividend Yield: Adtran (ADTN) boasts a current dividend yield of 2.4523%, exceeding the industry average of 1.19%, indicating a relatively high income return compared to peers. However, this has fluctuated historically. 2. Dividend Growth Rate: Adtran's average dividend growth rate over the past 20 years is negative, with an average dividend ratio of -5.24%, and only a few years showing positive growth. 3. Payout Ratio: The average payout ratio is very low at 1.73%, which indicates ample capacity to cover dividends, though anomalies like extremely high or negative payout ratios in some years might indicate financial instability at times. 4. Earnings Coverage: Adtran’s earnings have not consistently been sufficient to cover its dividend payments, with several years where earnings per share were low or negative. 5. Cash Flow Coverage: Adtran has experienced volatile cash flow trends, with frequent negative cash flows in recent years casting doubt on the sustainability of its dividend payments. 6. Dividend Stability: Generally stable dividends from 2003 to 2022 were interrupted by a 50% drop in 2023, raising concerns about income reliability. 7. Dividend Duration: While dividends have been paid consistently since 2003, this totals nearly 20 years and falls short of the 25-year marker that many investors look for. 8. Stock Repurchases: No specific details were provided.

Insights for Value Investors Seeking Stable Income

Given that Adtran (ADTN) has mixed results across the criteria used for dividend analysis, it's characterized by moderate dividend reliability but also comes with significant risks. The current higher-than-average yield, combined with low payout ratios, might attract income-seeking investors, but the inconsistent growth, earnings, and cash flows pose concerns. The recent 50% cut in dividends signals further caution. Potential investors should carefully monitor financial health indicators and be aware of associated risks, possibly looking further into the reasons behind low payout and coverage ratios in certain years before making an investment decision.

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?

A dividend yield represents the ratio of a company's annual dividend compared to its share price. It's an indicator of how much income an investor might expect relative to the price paid for the stock. The industry average dividend yield serves as a benchmark to compare the company's dividend offerings against its peers.

For Adtran (ADTN), the current dividend yield of 2.4523% surpasses the industry average of 1.19%. This indicates that Adtran is offering relatively higher income returns compared to its industry peers. Considering the dividend yields from the last 20 years, the company's yield has generally fluctuated, with periods of higher dividends corresponding to lower stock prices (e.g., 2003 and 2008). In recent years, Adtran's yield appears more stable and competitive. Additionally, a higher yield may attract income-focused investors but could also raise questions about sustainability if the payout is too high relative to earnings. Thus, this trend is positive, showing robustness in Adtran's dividend offerings over its industry, but should be monitored for underlying financial health.

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

Analyzing the Dividend Growth Rate involves examining whether the company's dividends have increased by at least 5% per year over a 20-year period. A consistent increase indicates a financially stable and profitable company.

The provided Dividend Ratio figures for Adtran (ADTN) from 2003 to 2023 primarily show negative values, with an average dividend ratio of -5.24%. This suggests that Adtran has not increased its dividends sustainably, since only a couple of years show positive growth. Specifically, the years 2005 and 2006 had positive dividend ratios of 6.25% and 5.8824%, respectively, but these were outweighed by significant negative ratios in other years. Given this data, Adtran's dividend growth rate has not met the >5% criterion over the past 20 years, indicating a lack of consistent financial strength in terms of dividend payments.

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

This criterion examines whether Adtran's average payout ratio over the last 20 years is below 65%. The payout ratio indicates the proportion of earnings a company pays to its shareholders in the form of dividends. A high payout ratio can suggest limited reinvestment into the company or potential future dividend cuts, while a lower ratio indicates a balance between rewarding shareholders and retaining earnings for growth.

The average payout ratio of Adtran over the last 20 years stands at approximately 1.73%, substantially lower than the upper threshold of 65%. This predominantly low payout ratio is generally a positive sign, showing that the company has ample earnings to cover its dividend payouts while reinvesting sufficiently in its own growth. However, it's important to note the extremely high and negative payout ratios in certain years (e.g., -1100.92% in 2022 and 727.27% in 2021), indicating some years with extraordinary circumstances impacting earnings. These anomalies can skew the overall analysis and warrant further investigation into what caused these discrepancies.

Dividends Well Covered by Earnings?

This criterion analyzes whether the company’s earnings per share (EPS) are sufficient to cover its dividend payments. It is crucial because consistent ability to pay dividends from earnings indicates a company's financial health and profit sustainability.

Analyzing the historical data provided for Adtran's EPS and dividends per share, we notice some concerning trends. The dividend coverage ratio (% of earnings covering dividends) should ideally be above 1 or 100%. Here, the ratios from 2003 to 2007 are below 1, indicating that earnings per share were not always adequate to cover dividends. This points to a potential risk. Moreover, the ratio becomes negative in several years, indicating losses. Specifically, in 2016 and 2021, the EPS turned negative, resulting in negative coverage ratios, meaning that the company made dividend payments despite incurring losses. The trend worsens in recent years, with 2023 showing a significant negative EPS (-3.4137), covering dividends by -0.052. This scenario is concerning, suggesting financial strain or divergence from a growth trajectory. Hence, consistently having earnings above dividends is critical, and Adtran's financial metrics indicate some periods of underlying struggles.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow indicate that a company is generating enough free cash flow to comfortably pay its dividends. This is important as it shows the company's ability to sustain or grow its dividend payments without compromising its financial stability.

Adtran's free cash flow has shown a very volatile trend from 2003 to 2023, with significant fluctuations. In 2015, cash flow coverage was extremely high at 2.71, meaning the company generated enough cash flow to cover its dividend payments multiple times over. However, in several years, especially recent ones like 2019, 2020, 2021, 2022, and 2023, the company posted negative cash flow, indicating that it had to dip into reserves, borrow, or use other sources to fund dividend payments. In fact, 2019 and 2023 have exceptionally poor coverage ratios at -1.81 and -0.24, respectively. This inconsistency and frequent negative cash flow coverage suggest a potential risk to the sustainability of Adtran’s dividends and highlight that while they managed to pay dividends over the years, their reliance on non-operating cash flows could be concerning. Such a trend does not instill confidence and represents a bad sign regarding the dividend's stability.

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.

Analyzing the dividend per share values for ADTN (Adtran) over the past 20 years reveals a notable degree of stability, despite slight deviations. Between 2003 and 2022, the dividend remained constant at $0.36 per share annually, which until then implicitly showed no dips greater than 20%. However, a stark decrease to $0.18 in 2023—representing a 50% drop—is significant and contrasts sharply with the previous steadfast pattern. While such constancy over two decades underlines security and predictability in income generation, the recent decline raises flags. Potentially stemming from broader financial strategy changes or market pressures, this break from historical trend demands vigilance, and its potential implications for long-term income stability should be carefully assessed.

Dividends Paid for Over 25 Years?

Dividends paid over 25 years or more indicate a company's long-term financial health and commitment to returning value to shareholders.

Adtran (ADTN) has been paying dividends consistently since 2003. However, from 1998 to 2002, there were no dividend payments. It's important to highlight that consistent dividend payments for nearly 20 years show a positive trend but fall short of the 25-year mark, which many investors consider a benchmark for reliability and stability. Additionally, the dividend started at a high of $1.15 in 2003, fluctuated briefly in 2004, and has largely remained stable at $0.36 per share since 2007, indicating a stable but not growing dividend policy. In 2023, a decrease to $0.18 per share was observed, which might raise concerns about future dividend sustainability.

Reliable Stock Repurchases Over the Past 20 Years?

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

Stock repurchases, or buybacks, refer to the practice where a company buys back its own shares from the marketplace. This criterion examines how reliably Adtran has repurchased its stocks over the past 20 years. Effective repurchases often indicate that a company has excess capital and believes its own stock is undervalued. Additionally, consistent repurchase programs can be an indicator of financial health and shareholder value enhancement.