Last update on 2024-06-27

Broadcom (AVGO) - Dividend Analysis (Final Score: 6/8)

Analyze the performance and stability of Broadcom's (AVGO) dividend policy using an 8-criteria score system. Final Score: 6/8.

Short Analysis - Dividend Score: 6

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

Broadcom (AVGO) has been analyzed based on 8 criteria to assess its dividend policy performance and stability. Here's what we found: 1. **Dividend Yield**: Broadcom's current yield of 1.7066% is notably higher than the industry average of 0.65%, a positive indicator for income-focused investors. 2. **Dividend Growth Rate**: Although it fluctuates, Broadcom's average growth rate of ~57.53% is inconsistent, implying unreliable financial health. 3. **Payout Ratio**: At an average of 53.23% over 20 years, Broadcom's payout ratio is below the 65% threshold and considered sustainable, though it has had significant annual fluctuations. 4. **Dividends Covered by Earnings**: Generally improving, Broadcom shows healthy trends but isn't without volatile periods. 5. **Dividends Well Covered by Cash Flow**: Not discussed in-depth, but generally a critical measure for sustainability. 6. **Stable Dividends**: Apart from one dip, Broadcom has shown impressive growth and stability in dividends since 2010. 7. **Dividends Paid for Over 25 Years**: Broadcom misses this benchmark as it has paid dividends only since 2011. 8. **Stock Repurchases**: Not detailed, but is an indicator of returning value and long-term stability. To sum up, while Broadcom's dividend policy has strong points like high yield and stable growth, there are concerns about consistency and long-term reliability.

Insights for Value Investors Seeking Stable Income

Given the analysis, Broadcom (AVGO) shows potential as a dividend stock with its high yield and commitment to returning value to shareholders. However, due to some inconsistencies in growth and short history of dividend payments (13 years), careful consideration is warranted. It's a promising option for income-focused investors but might not be the best pick for those prioritizing long-term reliability and consistency. Further scrutiny of the company's financial health and strategies is advised before making an investment.

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 is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price. It's crucial for income-focused investors.

Broadcom's current dividend yield of 1.7066% is notably higher than the industry average of 0.65%. Over the past 20 years, Broadcom's dividend yield has generally trended upward. For example, it was 0% from 2007 to 2009, reaching as high as 4.4832% in 2018. Over the same period, the industry's average dividend yield never exceeded 1.41%. This higher yield can be appealing to income-focused investors since they receive a better return on their investment compared to others in the same industry. The increase in dividend per share from $0.07 in 2010 to $19.05 in 2023 also highlights Broadcom's strong commitment to returning value to shareholders. Given this information, Broadcom's dividend yield is a positive indicator and sets the company apart from many of its industry peers.

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

The Dividend Growth Rate measures how much a company's dividend payments have increased annually, which reflects financial health.

To evaluate Broadcom’s Dividend Growth Rate, we see varied dividend per share ratios from 2007-2023. The highest being ~471% in 2011 and lowest being negative (-1.75%) in 2019. Average is ~57.53%. With several spikes and drops, the inconsistency does not suggest stable growth or positively exceeding 5% per annum. This trend is concerning as reliable dividend growth reflects a company's consistent financial health, which Broadcom's data does not exhibit in the given span.

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

The Payout Ratio measures the percentage of earnings paid to shareholders as dividends. A ratio lower than 65% is traditionally viewed as sustainable.

Broadcom's average payout ratio over the last 20 years stands at 53.23%, which is below the 65% threshold considered sustainable. This is generally a positive indicator for dividend sustainability. However, an analysis of annual figures reveals significant fluctuations, including extreme values like 124.87% in 2014 and 163.64% in 2019. Such volatility might be concerning and indicate underlying issues or one-off events impacting earnings or dividends in those years. Despite these spikes, the fact that the long-term average remains below 65% suggests that Broadcom has generally managed its dividend payouts within a sustainable range.

Dividends Well Covered by Earnings?

Evaluating if dividends are well covered by earnings involves comparing dividend per share with earnings per share (EPS). A ratio above 1 indicates strong coverage.

Between 2010 and 2013, Broadcom's dividends per share increased from $0.07 to $0.88, while EPS varied sporadically. Notably, EPS covered only 18% to 40% of dividend payouts, suggesting limited coverage initially. Turnaround occurred post-2014, evidenced by EPS covering dividends more robustly, peaking in 2015 with EPS at $4.8541 versus a dividend of $1.64, achieving a coverage ratio of 124.87%. However, in 2016, negative earnings caused EPS to be -$4.5405, making dividend coverage unsustainable. Rapid recovery and subsequent growth in EPS led to generally improved coverage ratios, peaking in recent years close to, but not exceeding, the ideal threshold of 1. Particularly in 2023, despite paying dividends of $19.05 per share, EPS of $33.9325 resulted in a ratio of 56.14%, indicating moderate coverage. Hence, Broadcom shows healthy dividend coverage trends with incremental improvement over the years although subject to periodic volatility.

Dividends Well Covered by Cash Flow?

Explain the criterion for Broadcom (AVGO) and why it is important to consider

Dividends covered by cash flow is a critical measure as it assesses the sustainability of a company's dividend payments relative to the free cash flow it generates. High dividend coverage ratios are indicative of a company's strong ability to pay dividends, enhancing investor confidence and potentially improving the stock's attractiveness.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends mean dividends per share do not drop by more than 20% over 20 years.

Over the past twenty years, Broadcom (AVGO) has demonstrated a remarkable growth in its dividend per share. Starting with zero dividends until 2010, the company's dividend has seen consistent growth. As of 2023, its dividend per share stands at $19.05, a substantial increase from $0.07 in 2010. For income-seeking investors, this stability and growth are critical as they reflect the company's strong financial performance and commitment to returning value to shareholders. However, stability in dividend payments means that the dividend should not drop by more than 20% at any point. There was one instance recorded where the dividend was dropped by more than 20%, which somewhat diminishes the perfect track record. Nonetheless, Broadcom's overall dividend growth trajectory is impressive and largely stable, emphasizing its reliability as an investment. Thus, apart from that isolated dip, the trend is mostly positive, showcasing a healthy trend of dividend payments.

Dividends Paid for Over 25 Years?

Whether a company has paid dividends for over 25 years measures its long-term commitment to returning capital to shareholders.

Broadcom (AVGO) does not meet the criterion of paying dividends for over 25 years. According to the given data, Broadcom started paying dividends in 2011 with a dividend per share of $0.07, and it has progressively increased its dividends to $19.05 per share in 2023. The trend of increasing dividends is decidedly positive in terms of growth and shareholder returns; however, it only covers a span of 13 years, which falls short of the 25-year benchmark. This is relatively short compared to companies with longer histories of consistent dividend payments, suggesting that while Broadcom is not as mature in this context, its aggressive growth in dividend payouts is a very favorable trend.

Reliable Stock Repurchases Over the Past 20 Years?

Explain the criterion for Broadcom (AVGO) and why it is important to consider

Reliable stock repurchases over the past 20 years indicate a company's commitment to returning value to its shareholders and instilling confidence in its long-term financial stability. By consistently buying back shares, a company reduces the total number of shares outstanding. This can positively impact earnings per share (EPS) and signal to investors that the company's management believes the stock is undervalued.