Last update on 2024-06-27

Bath & Body Works (BBWI) - Dividend Analysis (Final Score: 7/8)

Analyze Bath & Body Works' (BBWI) dividend performance. Get insights on their 8-criteria scoring system, dividend yield, payout ratio, and sustainability.

Short Analysis - Dividend Score: 7

We're running Bath & Body Works (BBWI) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

Bath & Body Works (BBWI) has been analyzed using an 8-criteria system to evaluate its dividend policy. Here are the key points: 1. The dividend yield of 1.8536% is higher than the industry average, which is good for income-seeking investors. 2. The average annual dividend growth rate is not consistent, showing both significant increases and reductions, which is unfavorable for those looking for stable growth. 3. The payout ratio averages 62.89%, under the safe threshold of 65%, but has shown volatility in individual years. 4. Dividend coverage by earnings is inconsistent, with several years failing to meet the ideal benchmark. 5. Dividend coverage by cash flow is also variable, raising concerns about sustainability. 6. Dividend stability is lacking, with significant drops observed over the years. 7. Dividends have been paid for over 25 years but without consistent upward growth. 8. The company has shown a fairly consistent history of stock repurchases, which is good for EPS and investor confidence.

Insights for Value Investors Seeking Stable Income

Overall, Bath & Body Works (BBWI) presents a mixed picture when it comes to dividend policy. While the dividend yield is attractive and the stock repurchase history is positive, the inconsistent dividend growth and coverage raise concerns. If you're looking for stable and reliable dividend income, BBWI may not be the best choice. However, if you appreciate higher yields and stock buybacks, you might still consider it, but weigh the risks of its inconsistency. A cautious approach is recommended.

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 measure of a company's annual dividend payments expressed as a percentage of its share price.

Bath & Body Works (BBWI) currently boasts a dividend yield of 1.8536%, which surpasses the industry average of 1.21%. Historically, BBWI has presented a fluctuating dividend yield rate, with significant peaks in various years. Key observations include a dramatic yield of 14.9691% in 2010 and a low of 0.6448% in 2021. This variability may be attributed to shifts in either the company’s dividend payouts or its stock price. The latest yield, though not as spectacular as some past instances, still showcases BBWI's commitment to returning value to shareholders through dividends. A yield higher than the industry average is generally favorable, suggesting BBWI’s potential attractiveness to income-focused investors. However, this trend alone should not drive investment decisions, as sustainability and growth prospects of dividends must also be considered.

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

The Dividend Growth Rate criterion analyzes the consistency and rate of dividend increases over a period of 20 years, helping to assess the reliability of dividends for income-focused investors. It is significant as it indicates a company's commitment to returning value to shareholders.

The Dividend Per Share Ratio for Bath & Body Works (BBWI) shows a highly inconsistent pattern over the period of 20 years. While some years demonstrated significant increases, such as 327.4947 in 2004 and 666.6612 in 2010, other years had negative values or even zero dividends, indicating cuts or suspension of payments. The average dividend ratio is 49.732642857142864, suggesting that overall, the company has a moderate average growth in dividend payouts. However, this inconsistency does not meet the criterion of a consistent growth rate higher than 5% annually. Therefore, this erratic trend is unfavorable for long-term income investors seeking stable dividend growth.

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

The average payout ratio is critical because it reflects a company's ability to sustain its dividend payments. A ratio lower than 65% is generally seen as a safe threshold, ensuring that the company retains enough earnings to fuel future growth and maintain financial stability.

The average payout ratio over the last 20 years for Bath & Body Works (BBWI) stands at approximately 62.89%, which is below the generally accepted safe threshold of 65%. This indicates a positive trend in terms of dividend sustainability as the company retains enough earnings to reinvest in growth. However, it is crucial to note some volatility in individual years, such as 2004 and 2010, where the payout ratio soared to 101% and 271% respectively, which could indicate periods of financial stress. Furthermore, the negative ratio for 2020 (-39.81%) is abnormal, potentially reflecting exceptional circumstances like the COVID-19 pandemic. Overall, while the long-term average is promising, the year-on-year fluctuations warrant cautious analysis.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings.

Dividends being well covered by earnings is vital as it signifies the company's capacity to return value to shareholders without jeopardizing financial stability. In the period from 2003 to 2023, the Earnings per Share (EPS) and Dividends per Share (DPS) show considerable variability. The dividend coverage ratio, calculated as EPS divided by DPS, ideally should be greater than 1 to ensure that the dividends are sustainable. Here, BBWI demonstrates fluctuating coverage ratios with several years falling short of this ideal benchmark. For instance, in 2018 and 2023, the ratios were 0.567 and 0.231 respectively, indicating poor coverage. This inconsistent trend is concerning for potential investors as it implies periods where earnings were insufficient to cover dividends, hence bad for given criteria.

Dividends Well Covered by Cash Flow?

Examining whether dividends are well covered by cash flow involves checking if a company's free cash flow comfortably covers its dividend payments.

Analyzing the cash flow data for Bath & Body Works (BBWI) from 2003 to 2023, it's essential to compare the company's free cash flow against its dividend payout amounts. A ratio of 1 or higher indicates that dividends are well covered by cash flow. It's evident that BBWI had several years, such as 2005 (1.44), 2011 (1.47), 2012 (1.36), 2013 (1.90), and 2016 (1.03), where their dividends were adequately covered by free cash flow. However, in many other years, the company struggled to cover dividends with its cash flow, especially alarming in 2020 (0.09), 2021 (0.05), 2022 (0.10), and 2023 (0.23). This indicates a trend that could be concerning for long-term sustainability, suggesting that BBWI needs to align its dividend policies more closely with its free cash flow generation capabilities, especially amidst fluctuating market conditions and internal financial strategies.

Stable Dividends Since the Company Began Paying Dividends?

Stable Dividends Over the Past 20 Years

Evaluating the data on dividends per share over the past 20 years for Bath & Body Works (BBWI), it is evident that the company has not demonstrated stability in its dividend payments. The data shows significant fluctuations, with some years witnessing dividends falling by more than 20%. Specifically, from 2004 to 2005, there was a significant drop of approximately 64.8%. Again, from 2012 to 2013, dividends decreased by about 9.1%. Another notable drop is from 2018 to 2019, with a decrease of around 41.1%. These declines suggest variability and inconsistent dividend payouts, which can be concerning for income-seeking investors who value stability and predictability in dividend income. While Bath & Body Works did have periods of higher dividends, the lack of stability calls into question its reliability in providing consistent returns for income-focused investors, marking this trend as primarily negative for the given criteria.

Dividends Paid for Over 25 Years?

Dividends paid for over 25 years indicates a company's stability and commitment to returning profits to shareholders, bolstering investor confidence.

Bath & Body Works (BBWI) has a mixed history regarding dividends paid over the past 25 years. The data shows a trend in dividend payments since 1998, with fluctuations in payouts. For instance, in years like 2010, a high dividend per share of $3.7187 was noted, while years like 2020 appear to have seen a significant drop to $0.3 per share. This inconsistency can concern investors seeking stable dividend income. Although the company has paid dividends over this period, the lack of consistent upward growth in dividends may weigh heavily on investor optimism surrounding continual high returns.

Reliable Stock Repurchases Over the Past 20 Years?

Examining reliable stock repurchases over a 20-year span involves evaluating a company's consistency and commitment to buying back its shares in the market. Share buybacks reduce the number of outstanding shares, often leading to an increase in the earnings per share (EPS) and signaling the company’s confidence in its financial health and future prospects. This criterion is important for dividend analysis as consistent share repurchases can also provide support for the stock price and imply a shareholder-friendly management.

Over the past 20 years, Bath & Body Works (BBWI) has shown a mixed but largely consistent approach to stock repurchases. The company bought back shares in 16 out of the 21 years assessed. The number of shares outstanding has reduced from 522 million in 2003 to 232 million in 2023, indicating a significant reduction of 290 million shares or an overall decrease of about 55.56%. The average repurchase rate over this period is -3.8415%, suggesting a somewhat steady withdrawal of shares from the market. Given these figures, BBWI demonstrates a positive trend in terms of reliable stock repurchases. This trend supports shareholder value by potentially enhancing EPS and solidifying investors’ confidence, which is beneficial for long-term dividend stability and growth. Such a practice is generally seen as good for shareholders because it suggests the company believes its stock is undervalued and is committed to returning value.