Last update on 2024-06-27

Cathay General Bancorp (CATY) - Dividend Analysis (Final Score: 5/8)

Cathay General Bancorp (CATY) Dividend Analysis: Stability, growth rate, payout ratios, and historical performance. Final score: 5/8 - Learn more!

Short Analysis - Dividend Score: 5

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

Cathay General Bancorp (CATY) has been evaluated against an 8-criteria scoring system to assess the performance and stability of its dividend policy. The company garnered a dividend score of 5 out of 8, reflecting both strengths and weaknesses. CATY's dividend yield is currently lower than the industry average, which might make it less attractive to income-focused investors. However, its average annual dividend growth rate over the last 20 years stands at an impressive 19.92%, indicating strong growth despite occasional drops. The payout ratio has been low at an average of 21.62%, suggesting good sustainability. On the downside, the company has struggled with covering dividends through earnings consistently and has experienced significant fluctuations in its dividend payments, particularly during financial crises. Additionally, while CATY has paid dividends for over 25 years, indicating a commitment to shareholder value, its repurchase rate indicates mixed engagement in stock repurchases.

Insights for Value Investors Seeking Stable Income

Given the mixed results, CATY might not be the best choice for investors solely focused on stable and high dividend yields. However, its commitment to dividend growth and long-term payments makes it worth considering for those who can tolerate some volatility and look for potential growth. Investors should pay attention to market conditions and the company’s efforts to stabilize earnings and coverage ratios.

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?

The dividend yield measures the annual dividend payment relative to the stock price. It serves as an indicator of the income generated by investing in the stock and is often compared to the sector or industry average to gauge its attractiveness.

Cathay General Bancorp's (CATY) dividend yield has been quite volatile over the past 20 years, with significant dips and rises. At 1.5257% in 2023, it is currently lower than the industry average of 2.76%. This lower yield might make CATY less attractive to income-focused investors compared to its industry peers. Historically, periods such as 2008, 2009, and 2020 show that CATY has yielded higher dividends than the industry's average, but recent trends indicate a downshift. The stock price at $44.57 and dividends per share at $0.68 for 2023 suggest a cautious approach, potentially due to broader market uncertainties or strategic reinvestments. This indicates a bad trend for yield-seeking investors, especially given the heightened industry averages in recent years.

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

The Dividend Growth Rate (DGR) measures the yearly percentage increase in dividends paid by a company to its shareholders. Over a 20-year period, a DGR higher than 5% indicates that the company consistently increases its dividend payouts, reflecting strong financial health and shareholder value.

Based on the provided data, Cathay General Bancorp (CATY) has an average dividend growth rate of approximately 19.92% over the last 20 years. This percentage is significantly higher than the 5% threshold, indicating that CATY has shown strong growth in its dividend payouts. High and consistent dividend growth typically suggests that the company is financially stable, has strong earnings potential, and is committed to returning value to its shareholders. However, there are occasional years with significant drops (e.g., -51.19% in 2009 and -80.49% in 2010), indicating some volatility in dividend payments. Despite these dips, the overall trend remains highly positive, suggesting good long-term prospects for dividend-seeking investors.

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

The average payout ratio is a measure of how well earnings support dividend payments. A lower ratio suggests sustainability.

Cathay General Bancorp (CATY) has maintained an average payout ratio of 21.62% over the past 20 years, which is significantly below the 65% threshold. This low payout ratio indicates that the company has been prudent in distributing dividends, ensuring it retains sufficient earnings for growth and stability. The trend revealed by the given data shows consistent payout management, with ratios predominantly staying well below the 65% mark, barring a few exceptions. This is a positive trend, reflecting CATY's capability to support and sustain its dividends.

Dividends Well Covered by Earnings?

The criterion that dividends should be well covered by earnings is crucial because it demonstrates the company's ability to pay dividends consistently without compromising its financial stability. A higher coverage ratio suggests a safer dividend.

Cathay General Bancorp (CATY) displays fluctuating earnings per share (EPS) and dividends per share (DPS) over the years. Observing the coverage ratio, where a ratio above 1 indicates that profits are sufficient to cover the dividend, CATY has struggled to maintain a safe margin. From 2003 to 2023, the ratios have varied, often staying below the safe threshold. Notably, negative earnings in 2009 led to an unsustainable payout. In recent years, though, CATY has improved, with the coverage ratio mostly stabilizing but dropping again in 2023 to 0.139, which raises concerns. This inconsistency suggests underlying profitability volatility, hence caution is advised. Overall, the trend shows improvement but not yet ideal stability.

Dividends Well Covered by Cash Flow?

Explain the criterion for Cathay General Bancorp (CATY) and why it is important to consider

Criterion 3: Dividends Well Covered by Cash Flow is essential because it assesses the sustainability of dividend payments from the company's free cash flow. This metric is important as it indicates whether the company generates enough cash flow to comfortably cover its dividend obligations, without needing to rely on additional financing or depleting cash reserves. If the free cash flow sufficiently covers dividend payouts, it suggests financial stability and a lower risk of dividend cuts.

Stable Dividends Since the Company Began Paying Dividends?

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

Examining the dividend per share data for Cathay General Bancorp (CATY) over the past 20 years, it can be observed that there have been significant fluctuations. Notably, there was a drastic reduction during the 2008 financial crisis, with the dividend per share dipping from $0.42 in 2008 to just $0.04 in 2009, representing an over 90% drop. Subsequent years show very little recovery until around 2013; from 2010 to 2012, dividends stagnated at $0.04. Another considerable drop is seen from 2022 to 2023 where the dividend reduced from $1.36 to $0.68, again a 50% decline. Thus, the data indicates that Cathay General Bancorp's dividend payments have not been stable over the past two decades and have experienced significant reductions greater than 20% on multiple occasions. These fluctuations underscore a risky profile for income-seeking investors who prioritize dividend stability.

Dividends Paid for Over 25 Years?

Evaluate how long Cathay General Bancorp (CATY) has been consistently paying dividends. This is crucial because long-term dividend payments often signal financial stability and dedication to returning value to shareholders.

Cathay General Bancorp (CATY) has paid dividends for at least 25 years, from 1998 to 2023, which demonstrates a strong commitment to returning value to shareholders. The dividend per share has shown variability, but in recent years it has generally increased, signaling financial robustness and the potential for continued dividends. This long-term consistency is a positive trend, suggesting reliability and stability to investors looking for dependable dividend-paying stocks.

Reliable Stock Repurchases Over the Past 20 Years?

Explain the criterion for Cathay General Bancorp (CATY) and why it is important to consider

Cathay General Bancorp has reduced its number of outstanding shares from 39,035,616 in 2003 to 72,573,025 in 2023. Over the past 20 years, reliable repurchases occurred in years such as 2007, 2008, 2016, 2019, 2020, 2021, 2022, and 2023. The average repurchase rate over this period was 3.722. Discuss the positive or negative trends based on this data.