Last update on 2024-06-27

Baxter (BAX) - Dividend Analysis (Final Score: 7/8)

Analyzing Baxter (BAX) dividend policy with a comprehensive 8-criteria scoring system, resulting in a robust final score of 7 out of 8 for stability and performance.

Short Analysis - Dividend Score: 7

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

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 essentially the ratio of a company's annual dividend compared to its share price.

Baxter International Inc. (BAX) has a dividend yield of 3.0005%, which is significantly higher than the industry average of 0.67%. This indicates that Baxter is providing a robust return to its shareholders through dividends compared to its peer group. Analyzing the dividend yield over the last 20 years shows a fluctuating trend with peaks and valleys, reaching as high as 7.9466% in 2014 and dipping to as low as 0.5493% in 2022. However, the overall trend appears positive, especially in the recent years. The consistent dividends portray confidence in Baxter’s earnings and cash flows. For instance, in 2021, the dividend yield was 2.528%, surpassing the industry average of 0.67%. A high dividend yield can be attractive to income-focused investors, signaling that the company is potentially a good investment for earning through dividends, especially when compared to the industry average that's relatively lower. Yet, it's crucial to also consider the company's payout ratio to ensure the sustainability of such high yields.

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

The dividend growth rate measures the annualized percentage growth of a company's dividend over a specified period. It's crucial as it indicates the company’s ability to increase its dividend payout over time, rewarding long-term investors with potentially higher returns.

The data provided for Baxter (BAX) shows significant volatility in the dividend per share ratio across the 20-year period, with a pronounced inconsistency in trends. Some years exhibit exceedingly high growth, such as 2007 (24.0407%) and the standout 2023 figure of 410.7143%, while other years, such as 2017 at -87.4077% and 2020 at -50%, turned negative. The average dividend ratio of 27.5739 exceeds the 5% benchmark, suggesting overall growth. However, the extreme variability is a concern, indicating the company may have gone through restructuring, external economic impacts, or other significant financial events. Despite these fluctuations, the overall trend of more substantial average growth is good if sustained. A deeper look into the causes of large deviations is advised for a more comprehensive understanding.

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

Average payout ratio should be less than 65% over the last 20 years to ensure company’s dividends are sustainable.

The analysis of Baxter (BAX) over the last two decades displays an average payout ratio of 33.94%, which is well below the 65% threshold. Generally, a lower payout ratio suggests that the company is likely retaining sufficient earnings to support future growth, reinvestments, or provide a buffer during downturns - all signaling dividend sustainability and lower risk for investors.However, certain years show significant deviation from this trend with payout ratios spiking above the 65% mark, notably in 2015 (117.11%), 2017 (94.43%), 2019 (86.44%) and 2020 (88.22%). These instances could be indicative of extraordinary circumstances such as substantial impairments or restructuring charges that led to temporarily reduced earnings.Overall, the long-term trend remains favorable. Thus, BAX largely meets the criteria with a commendable performance regarding dividend sustainability.

Dividends Well Covered by Earnings?

Dividends are well covered by earnings.

The ratio of dividends covered by earnings per share (EPS) for Baxter ranges notably across the years, showing a significant disparity. The ratios fluctuate between 0.0849 in 2016 to as high as 1.171 in 2015. A healthy and sustainable payout ratio is generally considered to be between 0.4 to 0.6. In years where ratios exceeded 1, such as 2015, it indicates that dividends were easily covered by earnings. However, the inconsistent and sometimes negative values (e.g., -0.2962 in 2023) suggest potential volatility. The lower and negative ratios are clearly alarming, indicating that in some periods, Baxter's earnings were not sufficient to cover its dividends. This trend is therefore mixed; while there are periods of strong coverage, the overall inconsistency, particularly the recent trend, might be concerning for dividend sustainability.

Dividends Well Covered by Cash Flow?

Dividends Well Covered by Cash Flow

Dividends well covered by cash flow means the company's free cash flow (FCF) should comfortably cover its dividend payouts. This criterion evaluates a company's ability to cover its dividends with the cash it generates from operations. A healthy ratio is generally above 1.0, indicating the company generates enough cash to not only pay dividends but also have surplus for reinvestment or debt reduction.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends over the past 20 years are crucial for assessing a company's reliability in providing steady income to its shareholders.

Analyzing Baxter's dividend payments over the past 20 years, it’s evident that there have been significant fluctuations, with dividends per share experiencing drastic drops beyond the 20% threshold multiple times. Notably, the dividend per share dropped from $1.531 in 2010 to $1.265 in 2011, and then down again in 2015 from $1.27 to $0.765 and further lows in subsequent years. Such volatility is generally a red flag for income-seeking investors who prioritize steady and predictable dividend incomes. It might indicate underlying financial or operational struggles within the company during those periods. Additionally, it accentuates the necessity of delving deeper into the company’s financial health to comprehend the factors driving these fluctuations. While it's normal for occasional dips in dividends, consistency and stability are markers of a financially sound and shareholder-friendly company. Therefore, the volatile dividend history of Baxter diminishes its appeal to conservative dividend investors.

Dividends Paid for Over 25 Years?

Explaining the duration of dividend payments is crucial for understanding a company's consistency and reliability in returning value to shareholders.

Baxter has been paying dividends for over 25 years, as evidenced by the data since 1998. These dividends have varied, showing some consistency but with irregularities in amounts particularly from 2010 onwards, where higher dividends were occasionally followed by lower ones.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases over a long period, such as 20 years, suggest a company is committed to returning value to shareholders. Stock repurchases reduce the number of outstanding shares, potentially increasing the earnings per share and stock price.

Analyzing the data from 2003 to 2023, Baxter (BAX) shows several instances of share repurchases with notable reductions in 2007 through 2021. The total number of shares decreased from 606 million in 2003 to 506 million in 2023. This represents a consistent effort to repurchase shares despite fluctuations in some years. Specifically, 2007-2012, and 2018-2021 saw significant repurchasing activities. The average repurchase rate of -0.5249 suggests that, on average, Baxter has been reducing its share count by approximately 0.52% per year over the last two decades. This trend is generally positive as it indicates that the company is utilizing its excess cash to buy back shares, which can enhance shareholder value by increasing EPS and potentially boosting the stock price. However, the fluctuations and lack of a strictly linear decrease suggest variability in financial strategy or availability of excess cash for repurchases.