Last update on 2024-06-27

CDW (CDW) - Dividend Analysis (Final Score: 5/8)

Discover CDW's dividend policy and performance through an 8-criteria scoring system, achieving a score of 5/8. Evaluate stability, growth potential, and payout sustainability.

Short Analysis - Dividend Score: 5

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

CDW's performance in terms of its dividend policy was evaluated using an 8-criteria scoring system. The company scored 5 out of 8. Here's a brief look at each criterion: First, CDW's dividend yield as of 2023 is 1.0514%, slightly below the industry average. Historically, its yield has been rising but has mostly been lower than the average, which may not attract income-focused investors. Second, CDW's dividend growth rate doesn't meet the criterion of being above 5% annually over the last 20 years, showing inconsistency in growth despite some significant jumps in specific years like 2016 and 2019. Third, the company’s average payout ratio of around 11% comfortably meets the criterion of being below 65%, suggesting dividend sustainability. Fourth, CDW's dividends are well-covered by its earnings, with its EPS growing faster than its DPS, indicating financial stability. Fifth, the cover by cash flow reveal mixed results. Historically, free cash flow coverage of dividends varied significantly, yet recent trends since 2017 show moderate positivity. Sixth, since 2013, CDW's dividends have maintained an upward trend without any drop exceeding 20%, indicating stability. Seventh, CDW has not yet been paying dividends for 25 years, starting only since 2013, falling short of that valuation criteria. Lastly, regarding share repurchases over the past 20 years, CDW's activities indicate confidence about the firm's value and aim to increase shareholder value.

Insights for Value Investors Seeking Stable Income

For investors seeking income through dividends, CDW may fall short due to below-average dividend yields and inconsistent yet increasing growth rates. On the other hand, CDW demonstrates good dividend coverage by earnings, indicating solid financial stability, along with sustainable payout ratios. However, it has not yet met the benchmark of paying dividends for 25 years. For potential investors, CDW poses as a promising choice due to its solid corporate health and commitment to return value to shareholders, but caution is advised depending on individual investment goals, especially for those prioritizing immediate and stable income. Overall, it's worth a closer look for those who value a balanced approach between growth and income stability.

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 measures the cash returned to shareholders per dollar invested in equity and is crucial for income-focused investors.

As of 2023, CDW's dividend yield stands at 1.0514%, slightly below the industry average of 1.12%. Historically, CDW has shown a steady increase in dividend yield from 0.1841% in 2013. However, its yield has often trailed the industry. In recent years, CDW's lower-than-average yield could be attributed to its strong stock performance, with prices soaring from $23.36 in 2013 to $227.32 in 2023. While this trend reflects robust growth, investors seeking higher immediate income might find CDW's yield less attractive. Overall, the trend shows good corporate health but may not fully satisfy income-focused portfolios.

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

Examine whether the Dividend Growth Rate is higher than 5% over the last 20 years, important for sustainably increasing shareholder returns.

The Dividend Per Share Ratio for CDW has a fluctuating trend. It started paying dividends in 2013. From 358.1395 in 2013, the ratio dramatically fell, with figures showing a decline up till 2023, which comes in at 14.3541. However, specific individual increases, such as significant jumps in 2016 and 2019, need mentioning. Despite fluctuations, the overall trend does not imply a consistent annual growth rate of over 5%. Therefore, this criterion is not met and is negative for long-term investors seeking steady dividend growth.

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

A criterion for evaluating whether a company's dividend payouts are sustainable is examining their average payout ratio over an extended period, such as the last 20 years. A payout ratio lower than 65% suggests the company retains enough earnings to invest in growth opportunities, pay down debt, or navigate economic downturns. It helps investors gauge the safety of their dividend income.

CDW's average payout ratio over the last 20 years is 11.0266%. Given that this is substantially lower than the 65% benchmark, it indicates the company's dividend payouts are quite sustainable. For most of the earlier years, the payout ratio was at 0%, indicating they didn't pay dividends. Since 2013, the payout ratios have consistently remained well under 65%. For instance, in recent years (2022 and 2023) the ratios were 25.3539% and 29.1311% respectively, which stay comfortably within the sustainable range. This trend reflects positively on the company's policies concerning dividend distributions, balancing shareholder returns with reinvestment for growth.

Dividends Well Covered by Earnings?

Dividends well covered by earnings indicate that a company generates enough profits to sustain dividend payouts, ensuring investors of its financial stability.

An analysis of CDW’s earnings per share (EPS) and dividend per share (DPS) over the years paints a comprehensive picture of the sustainability of its dividend payments. Historically, CDW did not pay dividends until 2013, post which the dividends have been steadily increasing. For instance, the DPS rose from $0.043 in 2013 to $2.39 in 2023. Simultaneously, the EPS grew from $0.84 in 2013 to $8.20 in 2023. This indicates a healthy trend as the EPS growth outpaces DPS growth, showing increasing dividend coverage. Another noteworthy point is the improvement in the dividend coverage ratio over the years (from 0.051 in 2013 to 0.291 in 2023). The trend is favorable, suggesting that CDW consistently earns more than what it pays out as dividends, reinforcing its financial stability.

Dividends Well Covered by Cash Flow?

Examining whether dividends are well covered by cash flow is crucial as it indicates the company's ability to generate sufficient cash to sustain its dividend payouts, highlighting financial health and stability.

Analyzing the dividend coverage ratio for CDW from 2003 to 2023 reveals significant fluctuations over the years. A ratio above 1 indicates that free cash flow comfortably covers the dividend payouts, whereas a lower ratio, especially below 0.5, raises concerns about sustainability. In the years where CDW's payout ratios were notably low (e.g., around 0.137 in 2005 and 0.22 in 2013), the free cash flow was considerably higher than the dividend payouts, signaling a financially conservative approach and potential for future increases. However, consistently low coverage ratios, such as in 2014 (0.088), may raise red flags over time regarding the company's ability to sustain or grow its dividends. From 2017 to 2023, the coverage ratio shows positive trends, generally staying above 0.15 but rarely reaching very comfortable levels above 0.3. The 2019-2021 rise, peaking at approximately 0.343 in 2021, indicates an increasingly robust capacity to cover dividends, driven by increased free cash flow. Yet, in 2023, and recent years, the ratio tapering back to around 0.221 though positive, suggests a balanced but cautious dividend policy drawn from notable free cash flow growth—an overall good trend promoting financial prudence. However, improving consistency remains an avenue for highlighting financial robustity.

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.

Analyzing the dividend per share data for CDW (CDW) over the past 20 years reveals a crucial aspect about its stability and reliability in providing consistent income to its shareholders. Notably, CDW only started its dividend payouts in 2013, and since then, has shown a commendable upward trajectory in the dividends paid per share. Starting at 0.043 in 2013, the dividend has progressively increased each year, reaching 2.39 in 2023. The company's ability to steadily raise its dividend payout implies robust financial health and a strong commitment to returning value to shareholders. Importantly, the data indicates that there has been no year where the dividend dropped by more than 20%; in fact, there appears to be no year at all where the dividend dropped from the previous year. This trend of consistent dividend growth is not just a positive signal for current investors but also an attractive prospect for potential investors seeking stable and growing income streams. Given this, the trend of rising dividends with no substantial drops over the analyzed period is highly favorable for CDW. It reflects the company's capacity to generate sufficient and increasing profits, allowing for such shareholder returns. This consistent and growing dividend payout trend aligns perfectly with the criterion of stability, confirming that CDW meets the needs of income-seeking investors who prioritize steady and reliable dividend income.

Dividends Paid for Over 25 Years?

For a company to be considered a reliable dividend-paying entity, a history of consistently paying dividends over 25 years is crucial. This stability can be attractive to income-focused investors.

According to the provided data, CDW has only been paying dividends since 2013. Dividends have increased from $0 in 1998 to $2.39 in 2023. However, since the company has only a 10-year record of dividend payouts, it doesn't satisfy the 25-year history criterion. This suggests CDW may not yet be fully stable in this regard, which can be a concern for conservative, income-focused investors.

Reliable Stock Repurchases Over the Past 20 Years?

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

Analyzing the number of shares over a span of 20 years provides insight into the company's share repurchase activities. Share repurchases can be a signal of management's confidence in the firm's future prospects, as they imply that the shares are undervalued. Furthermore, consistent share repurchases can enhance shareholder value by reducing the number of outstanding shares, hence increasing the earnings per share (EPS) and the stock price.