Last update on 2024-06-27

American International Group (AIG) - Dividend Analysis (Final Score: 4/8)

American International Group (AIG) dividend score is 4/8, covering various criteria of dividend sustainability, stability, and historical performance trends in 2023.

Short Analysis - Dividend Score: 4

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

The analysis of American International Group's (AIG) dividend policy uses eight criteria to gauge performance and stability. The overall dividend score for AIG is 4 out of 8, signaling concerns. AIG’s current dividend yield stands at 2.0664%, which is lower than the industry average of 3.85%, making it less attractive for income-focused investors. A look into AIG's dividend growth rate over the past two decades reveals significant volatility, with rates fluctuating drastically and multiple years seeing no dividends. This inconsistency undermines investor confidence in its dividend reliability. AIG’s average annual payout ratio is troublingly erratic, with some years showing alarmingly high or negative figures, revealing an unstable financial footing for dividend payouts. Similarly, dividends being covered by earnings and cash flow show considerable variability, further highlighting uncertainties in financial stability. When assessing long-term stability, AIG has shown dividend interruptions and cuts, often responding to financial pressures, making it less appealing for those seeking regular income. Furthermore, AIG has not maintained consistent dividend payments over the past 25 years, and the history of stock repurchases lacks consistency, questioning the management’s commitment to shareholder value.

Insights for Value Investors Seeking Stable Income

Based on the provided analyses, American International Group (AIG) currently presents considerable risks as a stable and reliable dividend-paying stock. The historical volatility in dividend payments, poor coverage with earnings and cash flow, as well as significant disruptions over the past decades suggest caution. Unless there is a compelling reason aligned with one's investment strategy (e.g., favorable future growth outlook, strategic industry role), AIG may not be the ideal choice for investors focused on long-term, stable dividend income. If a stable and consistent dividend return is paramount, other stocks within the same industry with more reliable track records should be considered.

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

Interpreting the Dividend Yield involves understanding the annual dividend payment of a company as a percentage of its stock price. A higher dividend yield can attract income-focused investors, but extremely high yields may indicate underlying issues such as financial distress. American International Group's (AIG) current dividend yield of 2.0664% is notably lower than the industry average of 3.85%. This suggests AIG may not be as favorable for income-seeking investors compared to its peers.

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

Explain the dividend growth rate and why it is important to consider.

To assess AIG's dividend growth rate over the past 20 years, we must analyze the trend in its annual dividend distribution. The data suggest a highly volatile pattern with significant fluctuations in the dividend per share ratio. Notably, several years show an absence of dividend payouts, incisively zero in multiple instances (2009, 2011, 2018-2021). In contrast, there are periods with substantial hikes (e.g., 2005 and 2015 showing ratios of 89.6552 and 150 respectively). A 5% growth rate suggests steady growth which isn't supported by this erratic trend of AIG. This unpredictability makes it challenging for investors to rely on dividends as a consistent income stream. Although AIG records an average dividend ratio of 11.3483, the sporadic and often discontinuous pattern undermines overall reliability. Therefore, while the average might superficially indicate a plausible trend, the underlying inconsistency indicates a less desirable attribute for dividend growth reliability in a long-term investment.

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

The payout ratio is a key metric that shows the proportion of earnings a company pays to shareholders in the form of dividends.

Analyzing AIG's payout ratio over the past 20 years shows significant volatility and abnormal values, such as 87.96% in 2011 and -19393.94% in 2018. The average payout ratio is a striking -918.89%, which is profoundly concerning and abnormal. Ideally, a sustainable payout ratio should be below 65%. These figures indicate inconsistent profitability, extraordinary items affecting net income, or significant restructuring costs. Overall, this trend suggests financial instability, making it a bad indicator for dividend sustainability.

Dividends Well Covered by Earnings?

Dividends being well covered by earnings means that a company has enough profit to pay its shareholders without depleting reserves. This indicates financial health and sustainability.

Analyzing the Earnings Per Share (EPS) and Dividend Per Share (DPS) data for American International Group (AIG) from 2003 to 2023, it reveals an inconsistent trend in dividend coverage. For instance, between 2003 and 2007, there is a poor coverage ratio, with 2005 showing just 0.138. Post-2008 financial crisis, AIG shows negative EPS (2008: -$754), eliminating dividends until 2011. Their coverage normalized post-crisis with the highest ratio in 2011 (0.880), but dropped significantly again in several years, showing a volatile pattern in earnings and dividend sustainability. Though AIG managed better coverage in recent years (2023: 0.276), the overall inconsistency implies potential risk. Thus, despite signs of improvement, the trend sustains more signs of risk than financial robustness regarding dividends covered by earnings.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow is crucial as it indicates how comfortably a company can pay dividends from its generated cash flow, important for sustainability of payouts.

American International Group (AIG) presents a varied history concerning its dividends being well covered by cash flow. Reviewing the provided data, we see a fluctuating pattern: From 2003 through 2008, coverage ratios hover mostly under 0.1, reflecting that dividends were grossly undercovered by cash flow—it jumped close to 2.0 in 2006, suggesting better coverage that year. Negative values during 2008 indicate severe issues, largely explained by the financial crisis's devastating impact. Moving to the 2009 period until 2012, there was no dividend payout, possibly to conserve cash. Resuming dividends in 2013 gave a mild 0.05 cover ratio and gradually improved to around 0.575 in 2016, hinting at stabilization. However, 2017 saw a sharp downturn as the coverage went negative owing to significant cash flow issues. In 2018, an extremely high ratio primarily resulted from very low free cash flow. The subsequent numbers bounce back, with positive but still low coverage ratios from 2020 to 2023, barely reaching 0.25 in most cases. In conclusion, consistent dividend sustainability concerns emerge, reflecting AIG’s uneven cash flow sufficiency—a bad trend that questions the stability and reliability of long-term dividend disbursements.

Stable Dividends Since the Company Began Paying Dividends?

Why is stable dividends over the past 20 years important to consider for AIG?

American International Group (AIG) has experienced significant volatility in its dividend payments over the past two decades. From 2003 to 2023, there were multiple years where AIG either cut its dividends to zero or drastically reduced them. Notably, in 2009 and 2010, AIG paid no dividends, and 2008 saw a dramatic reduction in the dividend per share to $12.4 from the previous $14.6. After resuming dividends in 2013, the dividend per share has shown a general upward trend but only started to stabilize from 2015 onwards at $1.28 per share, with a slight increase to $1.4 in 2023. Such instability could be interpreted negatively for income-seeking investors who prioritize consistent and predictable dividend income. The lack of stability signifies potential volatility in future dividend payments and raises questions about AIG's long-term financial resilience.

Dividends Paid for Over 25 Years?

The criterion investigates if the company has seen consistent dividend payments for over 25 years, which indicates stability and reliability in rewarding shareholders. This stability is crucial for long-term income-focused investors.

American International Group (AIG) does not meet the criterion of having paid consistent dividends for over 25 years. Between the years 1998 and 2023, there were several instances of dividend disruptions, most notably in 2009 and 2012, where no dividends were paid. The absence of dividends is usually a response to financial distress or a change in corporate strategy, both indicative of instability. Furthermore, the dramatic drops (e.g., from $12.4 in 2008 to $0 in 2009) highlight fiscal uncertainties. Although there has been some recovery in the years following 2013, the inconsistent history makes it less appealing for investors prioritizing stable dividend income. The recent uptick to $1.4 per share in 2022 and 2023 evokes a positive trend, yet the historical inconsistency remains a concern.

Reliable Stock Repurchases Over the Past 20 Years?

Explain the criterion for American International Group (AIG) and why it is important to consider

Analyzing the reliability of stock repurchases over an extended period, such as 20 years, is a crucial aspect for investors in terms of understanding a company's capital allocation strategy. Regular and consistent repurchases can signal management's confidence in the company's future prospects and its commitment to returning value to shareholders. This, in turn, can lead to stock price appreciation over time, providing long-term value for investors.