Last update on 2024-06-27

Cogent Communications Holdings (CCOI) - Dividend Analysis (Final Score: 5/8)

In-depth analysis of Cogent Communications Holdings' (CCOI) dividend policy performance evaluated against an 8-criteria scoring system with a final score of 5/8.

Short Analysis - Dividend Score: 5

We're running Cogent Communications Holdings (CCOI) 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 signifies the dividend income relative to the stock price, indicating how much cash flow investors are getting for each dollar invested.

Cogent Communications Holdings' (CCOI) dividend yield of 4.9435% surpasses the industry average of 3.56%, suggesting a comparatively attractive dividend income for investors. Since initiating dividends in 2012 with a yield of 0.9276%, CCOI has consistently increased its dividend yield over the years, peaking at 6.2281% in 2022 before settling at 4.9435% in 2023. Whereas the industry average has remained relatively stable, fluctuating between highs of 6.33% in 2011 and lows around 2.14%-3.56% range subsequently. Despite some volatility, CCOI's upward trend in dividend yield, particularly its consistent increase since 2010, reflects positively on its shareholder return strategy relative to the more fluctuating industry performance. Current values indicate CCOI is still providing relatively high dividend income, making it a potentially attractive option for income-focused investors.

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 over a specific period, typically annually. It is crucial for long-term investors seeking income to ensure that their income will grow over time, ideally outpacing inflation.

The Dividend Per Share Ratio (DPR) for Cogent Communications Holdings (CCOI) has fluctuated greatly over the last 20 years, with notably high dividend payments in the early 2010s followed by a subsequent decline. Given the average DPR of 21.0484%, it's evident that the dividends have been inconsistent year over year, with a sharp drop observed in later years. This growth rate does not satisfy the criterion of being consistently over 5% annually over the long term. Thus, this trend is bad for investors looking for reliable dividend growth.

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

The Average Payout Ratio criterion assesses if a company is generating sufficient income to adequately cover its dividend payments. A ratio lower than 65% implies financial stability and sustainability, crucial for long-term dividend investors.

The data shows an average payout ratio of approximately 765.17% for Cogent Communications Holdings (CCOI) over the last 20 years. This significantly exceeds the ideal threshold of 65%. Notably, between 2011 and 2023, the payout ratio spiked at various points, with extreme values such as 6802.33% in 2014 and 3237.70% in 2022. These high figures indicate that the company is distributing dividends far in excess of its earnings, an unsustainable practice fueled potentially by debt or equity financing. Overall, this trend is unfavorable as it jeopardizes the company's financial health and dividend reliability.

Dividends Well Covered by Earnings?

Explain the criterion for Cogent Communications Holdings (CCOI) and why it is important to consider

Earnings per Share (EPS) reflect a company's profitability on a per-share basis, and it is vital as it indicates the company's ability to generate profit for shareholders. Dividends per Share (DPS) represent the portion of earnings distributed to shareholders. A fundamental measure of dividend sustainability is whether earnings adequately cover dividends. If a company's EPS is consistently lower than its DPS, it may be forced to cut dividends or borrow to maintain them.

Dividends Well Covered by Cash Flow?

Dividends Well Covered by Cash Flow refers to the extent to which a company's dividends are supported by its free cash flow. This is important because it indicates if the company generates enough cash to sustain its dividend payouts.

From 2003 to 2009, Cogent Communications Holdings (CCOI) had no dividend payouts and negative free cash flow, indicating they could not support dividends. Starting from 2010, as free cash flow turned positive, the company began paying out dividends. For most of these years, except 2023, the ratio of dividends covered by cash flow has been above 1, indicating that free cash flow sufficiently covered the dividend payments. In 2023, a significant drop in free cash flow resulted in a negative coverage ratio (-1.618), suggesting that the dividends in 2023 were not well-covered by cash flow, which is a concerning trend.

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.

Over the past 20 years, Cogent Communications Holdings (CCOI) has shown a remarkable upward trend in dividend per share, starting from $0 in 2003 to $3.76 in 2023. The company commenced dividend payments in 2012 and has consistently increased its dividend per share since then. The key aspect to note here is the absence of any consistent dividend over the earlier decade; however, the exponential growth in dividends since 2012 is commendable. Not a single year shows a dividend drop, let alone a drop over 20%, emphasizing a robust and stable dividend growth trend. For income-seeking investors, this consistent upward trajectory is promising and demonstrates the company’s strong commitment to returning value to shareholders. The fact must not be overlooked that the trend did not experience any interruption, which conveys management's confidence in generating consistent free cash flow to support dividend payouts.

Dividends Paid for Over 25 Years?

Analyzing whether a company has consistently paid dividends for over 25 years helps to determine its ability to provide steady returns to investors and reflect its financial health.

Cogent Communications Holdings (CCOI) has not been paying dividends for 25 years. As per the data, the company began distributing dividends only in 2012, and since then, the payouts have been increasing annually. This trend, while promising in recent years, shows only an 11-year track record rather than 25 years. Stability over a more extended period would be crucial to solidify its reputation for consistent shareholder returns. Given this 11-year history, it is too early to assert with confidence the company’s capability to maintain long-term dividend reliability comparable to companies with longer histories. However, the trend of consistent and increasing dividend payments since 2012 is a positive sign for investors looking for growing passive income.

Reliable Stock Repurchases Over the Past 20 Years?

Explain the criterion for Cogent Communications Holdings (CCOI) and why it is important to consider

Reliable stock repurchase programs aim to return value to shareholders by reducing the number of shares outstanding, thus potentially increasing earnings per share (EPS). Over the past 20 years, Cogent Communications Holdings (CCOI) has had a mixed history of stock repurchases. Between 2004 and 2023, the company repurchased shares in 8 out of those 20 years. This represents 40% of the period reviewed. Lower numbers of shares in these years suggest stock repurchasing activities, albeit not consistently every year. For example, shares went from 34439937 in 2005 to 763540 in 2004, then a notable decrease again in 2008 to 45623557 and 2009 to 44028736. After some fluctuations, there were drops again in 2012, 2014, 2015, and 2016, before another repurchase in 2019 from 45780954 to 45542315. This inconsistent repurchasing schedule may indicate strategic timing but also suggests some unpredictability. The trend could be seen as partially good as it shows the company’s willingness to buy back shares, but its sporadic nature makes it difficult to rely on for consistent value generation through increased EPS. Additionally, the average repurchase of 217.8661 over 20 years is relatively low, pointing towards the company directing capital elsewhere or conserving cash resources. This informs potential investors that while buybacks do occur, they are not a primary focus or strategy for shareholder returns.