Last update on 2024-06-27

BorgWarner (BWA) - Dividend Analysis (Final Score: 3/8)

BorgWarner's dividend analysis evaluates the performance and stability of BWA's dividend policy using an 8-criteria scoring system, yielding a score of 3/8.

Short Analysis - Dividend Score: 3

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

The dividend analysis of BorgWarner (BWA) based on an 8-criteria scoring system paints a mixed picture. Here's a simple breakdown: 1. **Dividend Yield:** BWA's yield (1.4485%) is lower than the industry average of 2.23% and has been on a downward trend. 2. **Dividend Growth Rate:** BWA has volatile growth with an average rate of 4.23%, which is below the desired 5%. 3. **Payout Ratio:** Favorably low at 13.38%, indicating a conservative dividend policy. 4. **Earnings Coverage:** Coverage fluctuates and is often below the ideal 1, signifying inconsistent earnings protection. 5. **Cash Flow Coverage:** Information on cash flow excess but general concerns parallel those on earnings coverage. 6. **Dividend Stability:** Not stable due to major cuts and skipped payments, notably between 2009 and 2012. 7. **Payment Consistency:** Has not paid consistently for 25 years, missing payments from 2010-2012. 8. **Share Repurchases:** Generally positive, with consistent buybacks improving shareholder value. Overall, BorgWarner meets the criteria of conservative payout but struggles with yield, growth consistency, and dividend reliability.

Insights for Value Investors Seeking Stable Income

Considering all the criteria, BorgWarner's (BWA) dividend policy has aspects of caution with conservative payouts but lacks stability and consistency in yields and growth rates. If you are an investor preferring reliable and stable dividend income, you might want to look into other stocks with better stability and higher yields. However, its consistent share repurchase strategy indicates some long-term value potential. Approach it as an investment with caution, focusing on long-term capital gain rather than immediate income.

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

BorgWarner's current dividend yield stands at 1.4485%, which is noticeably lower than the industry average of 2.23%. Examining the historical trend over the past 20 years, BWA's dividend yield has oscillated but has consistently remained below the industry average in recent years. For instance, in 2008, BWA's yield was at 2.2965%, significantly higher than the industry average of 5.16%. Post-2010, BWA's yield has been below the industry average, except in certain years such as 2013 and 2017, where it marginally exceeded. From 2008 through 2023, the dividend yield depicts a downward trend. This information reflects BWA's competitive stance within the industry regarding dividend payouts. Shareholders seeking high dividend returns might find BWA's undervalued yield concerning. Nonetheless, interpreting this trend in conjunction with stock prices and dividend payouts provides a broader financial snapshot.

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

The Dividend Growth Rate measures the annualized percentage rate of growth of a company's dividend. A higher rate suggests a company is consistently increasing its shareholders' returns, signaling stable and potentially growing financial health.

In the last 20 years, BorgWarner's (BWA) Dividend Growth Rate shows considerable volatility with significant fluctuations. Though certain years observed substantial increases (like in 2014 with a 156% increase), many years also witnessed negative growth, including a period of no dividends (0%) from 2009 to 2012 and again from 2020 to 2022. Averaging these growth rates yields an average dividend growth rate of about 4.23%, which is slightly below the desired 5% growth rate benchmark. Therefore, the dividend growth rate criterion is not met. This trend signals potential instability in BorgWarner's ability to consistently return value to its shareholders through dividends, hinting at possible underlying financial uncertainties or strategic shifts.

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

An average payout ratio lower than 65% over the last 20 years indicates a company's prudent dividend policy, reflecting its capacity to use retained earnings for business growth, potential acquisitions, R&D, or debt reduction. This balance is crucial for sustaining long-term profitability and shareholder value.

BorgWarner's average payout ratio over the last 20 years is 13.38%, considerably below the 65% threshold. Even with some fluctuations, such as a dramatic drop in 2008 (-143.42%) and a high peak in 2016 (96.29%), the overall average indicates that BorgWarner has maintained a conservative dividend policy. This conservatism likely reflects the company's emphasis on reinvesting in growth opportunities and ensuring financial stability. Moreover, consistent payout ratios below 30% in recent years (e.g., 28.97% in 2020, 30.15% in 2021) further reinforce this conservative stance. Thus, this trend is highly favorable for BorgWarner's long-term financial health and shareholder returns.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings means that the company's earnings are sufficient to pay out its dividends. This is measured by the Dividend Coverage Ratio, which is calculated as Earnings per Share (EPS) divided by Dividends per Share (DPS). A higher coverage ratio indicates a more sustainable dividend policy, which is crucial for investors seeking reliable income.

Over the years, BorgWarner's ability to cover its dividends with its earnings has fluctuated. For example, in 2007, the dividend coverage ratio was 0.139, implying that each dollar of dividend paid was substantially covered by earnings. However, during periods such as 2008 and 2009, where EPS was negative or extremely low, dividends were not covered at all, resulting in a ratio of -1.43 and 0, respectively. In more recent years, the coverage ratio has been more stable but still varies significantly, ranging from 0.154 in 2022 to 0.303 in 2021. These lower ratios, especially those below 1, signify that earnings are not fully covering dividends, potentially signaling risk unless the company can stabilize and grow its earnings. Overall, while some years show promise, the inconsistency over time makes this trend precarious for long-term dividend sustainability.

Dividends Well Covered by Cash Flow?

Explain the criterion for BorgWarner (BWA) and why it is important to consider

The Dividend Coverage Ratio examines the relationship between free cash flow generated by the company and the amount of dividends paid. It is an essential metric to ensure that a company generates enough cash to pay its dividends, ensuring sustainability. It typically is favorable if this ratio is substantially above 1, indicating the company can cover its dividend commitments comfortably. This addresses investor confidence in continuous dividend payouts.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividend payments, where the dividend per share did not drop by more than 20% over the past two decades, are of utmost importance for income-seeking investors.

Analyzing BorgWarner's dividend payments over the past 20 years: - In 2009, the dividend per share dropped from $0.22 in 2008 to $0.06, representing a significant decline of more than 70%. - From 2010 to 2012, the company did not pay any dividends. - Since 2013, BorgWarner resumed paying dividends, and they have shown a trend of steady increases until 2018 when the amounts stabilized and showed slight decreases in the last years. For income-seeking investors, the stability criterion is crucial to ensure reliable income. The significant drop in 2009 coupled with no dividends for three years indicates instability in dividend payments. This trend would be considered bad for investors seeking stable, consistent dividends as part of their investment strategy.

Dividends Paid for Over 25 Years?

Criterion 6 assesses whether a company has consistently paid dividends for at least 25 years. This criterion is crucial as it reflects the company's stability, commitment to shareholder returns, and its capacity to generate steady cash flow.

Upon examining the data from 1998 to 2023 for BorgWarner (BWA), we observe that the company did not pay any dividends between 2010 and 2012. Therefore, it fails to meet the criterion of continuously paying dividends for over 25 years. Prior to this gap, BWA’s dividends showed growth, moving from $0.075 in 1998 to a peak of $0.22 in 2008. After resuming, dividends again rose, reaching $0.68 between 2017-2020, demonstrating recovery. However, despite these positive aspects, the break in continuity denotes that BWA does not satisfy this criterion, making it less attractive to long-term income-focused investors.

Reliable Stock Repurchases Over the Past 20 Years?

Explain the criterion for BorgWarner (BWA) and why it is important to consider

The consistent repurchase of shares by a company is a helpful indicator of financial health and shareholder value creation. Repurchasing shares increases ownership value for investors by reducing the number of shares outstanding, thereby raising earnings per share (EPS) and often the stock price. This trend is also a signal that the company has excess cash flow and sees its own stock as a worthwhile investment. There are 21 years of data provided. In 12 of those years, BorgWarner (BWA) consistently reduced its share count through repurchases, suggesting stability and confidence. Specifically, from the list provided (2008, 2011, and 2012 are notable starting years), the number of shares dropped from its peak of 259,200,000 in 2010 to a current level of 232,800,000 in 2023. While recent years (2020-2023) have shown fluctuations potentially due to economic impacts such as the COVID-19 pandemic, the long-term trend indicates overall share reduction. With an average repurchase rate of 0.4094, BWA demonstrates better than average shareholder value creation. This trend is good for shareholders as it often indicates a favorable capital allocation policy and sustained business performance.