Last update on 2024-06-27

Applied Materials (AMAT) - Dividend Analysis (Final Score: 7/8)

Explore Applied Materials (AMAT) dividend analysis with an impressive 7/8 score, detailing performance, stability, and growth potential in dividend policies.

Short Analysis - Dividend Score: 7

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

Applied Materials (AMAT) received a solid score of 7 out of 8 based on a comprehensive 8-criteria dividend analysis. AMAT boasts a high dividend yield of 0.7528%, which is significantly higher than the industry average of 0.34%. Over the last 20 years, their average annual dividend growth rate has been 14.8%, despite some volatility and years with no dividends. With an average payout ratio of 41.63%, AMAT maintains a healthy balance between rewarding shareholders and retaining earnings for growth. Their dividends are generally well-covered by both earnings and cash flow, though recent years have shown a decrease in coverage by cash flow. AMAT has been reliably increasing its dividends since 2005 and has never reduced dividends by more than 20% in a given year, reflecting stability. However, they have not been paying dividends for over 25 years. The company has also reliably repurchased shares over the past 20 years, showing strong capital management.

Insights for Value Investors Seeking Stable Income

Given AMAT's strong dividend yield and consistent growth, the company is an attractive choice for dividend-focused investors. The healthy payout ratio and reliable share repurchase program further enhance its appeal. Although AMAT has not been paying dividends for over 25 years, the consistent upward trend and prudent financial management suggest stability and potential for future growth. If you're looking for a steady income and long-term investment, Applied Materials is worth considering despite some historical volatility.

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 represents the ratio of a company's annual dividend compared to its share price. It is a key consideration for income-focused investors.

Applied Materials (AMAT) currently has a dividend yield of 0.7528%, which is significantly higher than the industry average of 0.34%. Historically, there have been fluctuations. For example, in 2008, AMAT’s dividend yield spiked to 2.3692%, while in 2021 it was 0.5974%. Despite recent drops, AMAT's dividend yield remains robust compared to the industry, indicating strong income potential from dividends. Given the stock price increase to $162.07 in 2023, this trend shows continued shareholder returns, a positive sign.

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

The growth rate of dividends over time, especially compared to a baseline such as 5%, is a key measure of a company’s financial health, shareholder value, and stability.

Analyzing the Dividend Ratio data for Applied Materials (AMAT) from 2003 to 2023 reveals significant volatility in its historical dividend payouts. Notably, several years had a payout ratio of 0, indicating no dividend was given. Despite fluctuations, the average dividend ratio over the two-decade span is 14.8, well above the 5% threshold. Particularly, in years like 2006 (100%), 2017 (25%), and 2018 (40%), the company displayed strong dividend growth. Such cyclic variations highlight periods of high returns interspersed with phases of non-payment, suggesting a growth trend, albeit inconsistent. Overall, while achieving a high average, the volatility needs cautious interpretation; consistent long-term growth would be more favorable than such erratic patterns.

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

The Payout Ratio is the percentage of earnings paid to shareholders in dividends. A lower ratio is generally viewed positively as it implies greater sustainability and room for future dividend increases.

Applied Materials (AMAT) has an average payout ratio of approximately 41.63% over the past 20 years. This is well below the 65% threshold and is considered a good trend. Low payout ratios indicate that the company retains a significant portion of its earnings for reinvestment in the business, signaling potential for growth and future dividend increases. Despite experiencing some anomalies like -104.80% in 2009 and over 400% in 2012, these are likely outliers due to specific financial challenges those years. Overall, maintaining this average payout ratio level showcases prudent financial management.

Dividends Well Covered by Earnings?

Explain the criterion for Applied Materials (AMAT) and why it is important to consider

The criterion of dividends being well covered by earnings involves analyzing if the company generates enough profit to comfortably pay out dividends to its shareholders. A company that consistently earns more than it pays out as dividends is seen as financially stable and capable of maintaining or increasing its dividend payments in the future. This culminates in investor confidence and perceived lower investment risk.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow refers to the dividend payouts being sufficiently backed by the company's free cash flow. This metric is crucial as it assesses how comfortably a company can pay dividends using the cash flow generated from its operations.

The trend in Applied Materials' data displays varying levels of dividend coverage by its free cash flow over 2003 to 2023. In the initial years, especially 2009, the coverage was extremely high at about 3.79x, indicating extremely comfortable coverage. However, moving towards 2023, the coverage ratio has decreased, with the latest figure being 0.128, demonstrating a significant reduction in free cash flow relative to dividends paid. Despite the decline, dividends remain covered but the shrinking margin might be a signal of caution. It's imperative to monitor these trends as dwindling coverage could strain future dividend payments.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments is important for consistent income and signals financial health.

Analyzing the dividend per share of Applied Materials (AMAT) over the last 20 years, we notice that the dividends have generally been on an upward trend, rising from $0.09 per share in 2005 to $1.22 per share in 2023. Starting from no dividend payments before 2005, the amounts have increased almost every year. Notably, there was no year where the dividend per share dropped by more than 20%, indicating stability. This consistency is a positive sign for income-seeking investors as it indicates reliable and growing payments. The consistent growth, without significant reduction, reflects well on the company’s profitability and its commitment to returning value to shareholders, making it an attractive consideration for dividend-focused investment strategies.

Dividends Paid for Over 25 Years?

Explain the criterion for Applied Materials (AMAT) and why it is important to consider

The data indicates that AMAT has not been paying dividends for over 25 years straight. Their dividend payments started in 2005. This trend, starting from 0.09 in 2005 to 1.22 in 2023, shows a commitment to returning value to shareholders. Such a rising trend is generally positive as it suggests financial stability and growth. However, because AMAT has not met the 25-year mark, they fall short on this criterion.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases are pivotal for signaling a company's commitment to returning value to shareholders and managing capital effectively. It also indicates the company's confidence in its future prospects.

Over the past 20 years, Applied Materials has consistently repurchased shares, evidenced by the reduction in shares from approximately 1.66 billion in 2003 to around 840 million in 2023. Notably, out of the 20 years, 14 years showed reliable repurchase activity. This sustained reduction in share count (an average annual repurchase impact of -3.2922%) can be viewed positively, as it implies that AMAT has been actively working towards enhancing shareholder value by reducing share dilution and likely believes in its intrinsic value. Such consistent repurchasing activity is generally a good sign for investors and points to prudent capital management by the company.