Last update on 2024-06-28

Alexandria Real Estate Equities (ARE) - Dividend Analysis (Final Score: 2/8)

Explore the stability and performance of Alexandria Real Estate Equities (ARE) dividend policy with our comprehensive 8-criteria scoring system analysis.

Short Analysis - Dividend Score: 2

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

The dividend analysis for Alexandria Real Estate Equities (ARE) was measured against an 8-criteria scoring system. Unfortunately, ARE scored only 2 out of 8, suggesting some weaknesses in its dividend policy. 1. ARE's dividend yield of 3.24% is significantly below the industry average of 6.75%. Although there is consistent dividend growth, it may not attract income-focused investors. 2. While the dividend growth rate over the last 20 years averaged 4.52%, it slightly missed the 5% benchmark. This indicates a steadily growing but not exceptionally high growth rate. 3. The average payout ratio was significantly high at 119.70%, far exceeding the desirable 65%, implying potential financial distress in maintaining dividends. 4. The stability in dividends shows only a few disruptions, notably during the 2008-2009 financial crisis, but generally consistent and recovering. 5. Dividends are now better covered by cash flow, with improved coverage ratios since 2011. 6. Lastly, ARE has paid dividends consistently for 25 years, reflecting long-term reliability, despite no major stock repurchase history.

Insights for Value Investors Seeking Stable Income

Despite a consistent 25-year dividend history and a recovering free cash flow coverage, Alexandria's (ARE) current dividend yield, high payout ratio, and lack of stock repurchases could be concerning, especially for income-focused investors. It's worth considering if you value steady, long-term dividend growth and stability, rather than immediate high yields. Carefully review their financial strategies, especially their decisions on payouts and stock issuance.

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 measures the annual dividend payment to shareholders as a percentage of the stock's current price. It is important because it indicates how much income an investment is expected to generate.

Alexandria Real Estate Equities (ARE) currently has a dividend yield of 3.24%, which is significantly lower than the industry average of 6.75%. Over the past 20 years, ARE's dividend yield has fluctuated, peaking in 2008 at 5.27% and dipping as low as 2.01% in 2021 before rising again. This lower yield compared to the industry suggests that ARE may not be as attractive to income-focused investors. However, ARE's consistent dividend increases and relatively stable yield could attract long-term investors looking for steady growth. The company's current dividend of $4.96 per share, up from $2.20 in 2003, showcases robust dividend growth, despite the lower yield.

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

The Dividend Growth Rate is higher than 5% in the last 20 years and why is important to consider?

The Dividend Growth Rate for Alexandria Real Estate Equities (ARE) over the last 20 years shows a generally positive trend. In the annual dataset provided, 12 out of the 21 years (approximately 57%) demonstrated dividend growth rates exceeding 5'. However, it is important to note certain nuisances. For instance, 2003 and 2009 witness negative dividend growth rates at -10.5691 and -41.8239 respectively, indicating periods of financial distress or strategic capital reallocation. Despite this, the overall average dividend growth ratio of 4.5181% is nearly meeting the 5' benchmark. Accounting for variable rates, weighted trends suggest that ARE remains a reliable source for dividend growth investors. Further analysis for each year (%) and macroeconomic factors contributing to anomalies should be considered for holistic understanding.

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

Criterion 1.2: The average payout ratio is an indicator of a company's financial health and dividend sustainability. Ideally, a stable and manageable payout ratio under 65% is preferred to ensure dividends can be maintained or increased without jeopardizing future growth or incurring debt.

Based on the data provided, Alexandria Real Estate Equities (ARE) had an average payout ratio of 119.70% over the last 20 years. This is significantly higher than the recommended threshold of 65%. Additionally, there were several years, notably 2013 and 2023, where the payout ratio was unusually high, at 201.79% and 817.94% respectively. These figures indicate periods where the company may have paid more in dividends than its earnings, signalling potential financial distress or unsustainable dividend practices. On the other hand, there were years like 2009 and 2010 where the payout ratio was relatively low, at 53.04% and 53.67%. The year 2016 even shows a negative payout ratio which could indicate unusual financial adjustments or losses. Overall, this trend indicates potential instability in dividend sustainability, which may be concerning for long-term investors.

Dividends Well Covered by Earnings?

Explain the criterion for Alexandria Real Estate Equities (ARE) and why it is important to consider

The analysis looks at whether the dividends paid out by Alexandria Real Estate Equities are adequately covered by their earnings. As a general guideline, a payout ratio (dividends per share divided by earnings per share) below 1 indicates that the company is earning more than it is distributing in dividends, which is a positive sign for dividend sustainability.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow indicate that a company generates sufficient cash from operations to pay dividends. This metric is crucial as it assesses the sustainability of dividend payments without depending on external financing.

From 2003 to 2010, Alexandria Real Estate Equities (ARE) struggled with covering dividends through free cash flows, with coverage ratios largely negative and below 1.0, indicating cash flows were insufficient. However, from 2011 onward, the trend notably improved. By 2023, the ratio was approximately 0.52, suggesting dividends were more than half-covered by free cash flows. The improvement in free cash flow coverage ratio overall is positive, showcasing enhanced financial health and better sustainability in dividend payments.

Stable Dividends Since the Company Began Paying Dividends?

Dividend stability refers to the consistency in dividend payments over an extended period. It is critical for income investors as it gives confidence in income predictability and company's financial health.

Reviewing Alexandria Real Estate Equities' (ARE) dividend payout over the last two decades, it can be seen that there was only one year of substantial dividend decrease, between 2008 (3.18) and 2009 (1.85), which translates to more than a 20% drop. This was most likely a direct result of the global financial crisis, where many companies were forced to reduce dividends to preserve cash flow amidst economic uncertainty. Nonetheless, ARE's dividends have shown a strong recovery and continuous growth since then, suggesting solid long-term stability. This trend bodes well for income investors seeking stable and growing dividend streams, despite the initial hiccup.

Dividends Paid for Over 25 Years?

A company's history of paying dividends for over 25 years is important as it demonstrates financial stability, reliability, and a shareholder-friendly approach.

Alexandria Real Estate Equities (ARE) has paid dividends consistently from 1998 to 2023. This marks a 25-year track record of dividend payments, which is a positive indicator of the company's stable financial health and earnings capability. Over this period, ARE's dividend per share has grown from $2 to $4.96, indicating a strong growth trend that showcases the company's commitment to returning value to its shareholders. Therefore, this trend in consistent dividend payments over 25 years is good as it depicts Alexandria's robust financial foundation and investor trust.

Reliable Stock Repurchases Over the Past 20 Years?

Examining a company's history of stock repurchases over the past 20 years helps us understand if the company has consistently returned value to shareholders through share buybacks.

Alexandria Real Estate Equities (ARE) does not have a history of reliable stock repurchases over the past 20 years. In fact, there have been no reported stock buybacks during this period, as indicated by the steady increase in the number of outstanding shares from 19.25 million in 2003 to 170.91 million in 2023. This suggests that the company has been issuing more shares rather than repurchasing them. Generally, consistent share repurchases are seen as a positive sign for shareholders as they increase the value of existing shares. The absence of buybacks might be viewed negatively by some investors, especially those looking for shareholder value return through this mechanism. However, it's possible that ARE has been reinvesting its capital into business growth initiatives, especially given its expansion in shares and pursuit of development projects.