Last update on 2024-06-27

Citizens Financial Group (CFG) - Dividend Analysis (Final Score: 7/8)

Explore the performance and stability of Citizens Financial Group (CFG) dividend policy with an 8-criteria scoring system, achieving a final score of 7/8.

Short Analysis - Dividend Score: 7

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

Citizens Financial Group (CFG) has a strong dividend yield at 5.0694%, significantly above the industry average of 2.76%. However, while CFG's payout ratio is stable and relatively low at 24.20%, the dividend growth has been inconsistent, with big fluctuations over the years, casting doubt on its sustainability. Despite a positive trend in covering dividends with earnings, the coverage by cash flow has been unstable, with negative figures during certain years. CFG has shown stable dividend payouts since 2014 but lacks a long history of over 25 years. Furthermore, while share repurchase activities have been significant, they also exhibited some inconsistency over the years.

Insights for Value Investors Seeking Stable Income

Given the strong dividend yield and low payout ratio, Citizens Financial Group (CFG) may seem like an attractive investment for dividend-focused investors. However, the inconsistencies in dividend growth and coverage by cash flow, coupled with a shorter history of dividend payments, suggest caution. Potential investors should weigh CFG's strong current yield against its historical volatility and be prepared for potential fluctuations in dividend payments and share repurchases.

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 annual dividends paid out by a company as a percentage of its stock price. It is essential for income-focused investors.

Citizens Financial Group (CFG) has a current dividend yield of 5.0694%, which significantly outperforms the industry average of 2.76%. Historically, CFG only began paying consistent dividends from 2014 onwards. Over the last decade, CFG's dividend yield has shown impressive growth, starting from 0.4023% in 2014 and reaching 5.0694% in 2023. Compared to the industry average dividend yield, which has modestly increased from approximately 2.33% in 2011 to 2.76% in 2023, CFG's yield growth is markedly higher. This trend indicates CFG's strong commitment to returning value to shareholders, making it an attractive option for dividend-seeking investors. However, it's crucial to consider the sustainability of such high dividend yields, especially in relation to payout ratios and financial health.

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

The Dividend Growth Rate (DGR) measures how much the dividend payout has increased over time, giving investors an idea of the company’s ability to return profits to shareholders. A growth rate higher than 5% signifies a robust financial health and confidence in future earnings.

Citizens Financial Group (CFG) has shown a varied dividend payout history over the last decade. From 2011 to 2014, there were no dividend payments. Starting from 2015, the company began paying dividends, but the payouts have seen significant fluctuation, evident from the high payout in 2015 (300) dropping significantly in subsequent years. Although the average Dividend Ratio stands at approximately 36.02, the inconsistency raises concern. Analyzing specific years, we notice sharp increases and decreases: 2015: 300 2016: 15 2017: 39.1304 2018: 53.125 2019: 38.7755 2020: 14.7059 2021: 0 2022: 3.8462 2023: 3.7037. The dividends of CFG do not demonstrate a consistent growth pattern, and despite an average ratio which might look decent, the drastic ups and downs make it hard to vouch for a stable growth rate exceeding 5%. This inconsistency is a concern for continuous dividend growth seekers. Therefore, trend is bad.

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

The payout ratio measures the proportion of earnings paid out as dividends, a ratio lower than 65% indicates financial stability and a greater capacity for future investments.

Citizens Financial Group has an average payout ratio of 24.20% over the past 13 years, well below the 65% threshold. This trend is positive as it suggests that the company maintains a conservative dividend policy, retaining a significant portion of earnings to reinvest in the business or cushion against economic downturns. Notably, the highest payout ratio was in 2020 at 63.03%, likely due to the COVID-19 pandemic impacts, but even this peak did not exceed the critical threshold significantly.

Dividends Well Covered by Earnings?

Dividends should ideally be well covered by earnings to ensure sustainability. This criterion is important as it measures whether a company can comfortably pay out dividends from its earnings without jeopardizing its financial stability.

Examining Citizens Financial Group's (CFG) earnings per share (EPS) against their dividend payouts, we find that over the period from 2011 to 2023, the ratio of dividends per share covered by earnings per share has generally increased. Specifically, EPS increased from $0.9036 in 2011 to $3.3846 in 2023, while dividends per share rose from $0 in early years to $1.68 in 2023. By 2023, earnings cover nearly 50% of the dividends. This indicates a significant improvement, suggesting a healthier position for CFG regarding its ability to cover dividends with earnings. However, the dip in earnings per share in 2020 and onwards should be monitored as they reflect how downturns can impact payout ability. The trend is overall good, but caution is advised to ensure dividend coverages remain strong amidst fluctuating earnings.

Dividends Well Covered by Cash Flow?

Why it's important for dividends to be covered by cash flow

Dividends well covered by free cash flow are crucial for a company's financial health. A high coverage ratio means the company generates enough cash to comfortably pay dividends, ensuring sustainability. Citizens Financial Group's fluctuating coverage ratio highlights some inconsistencies. For example, in 2020, their FCF was negative, leading to a distorted -110%. The ratio rebounded to approximately 0.36 in 2021 and slid down to 0.22 in 2022 before rising again to 0.33 in 2023. This variability may concern investors seeking stable dividend coverage.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends over a long period make a stock more attractive for income investors because they can rely on a steady income stream, decreasing investment risk.

Citizens Financial Group (CFG) has a mixed record in terms of dividend stability. Although the company resumed paying dividends in 2014, it has steadily increased its payouts until 2020. Notably, the dividend per share did not decline by more than 20% year-over-year during this period, although dividends were absent from 2011 to 2013, indicating a potential past issue. In most recent years, from 2015 to 2023, dividends were consistently increased with no year experiencing more than a 20% drop, which is a positive trend for income-seeking investors. The consistent growth, particularly after 2014, reflects strong corporate health, but the complete absence of dividends before 2014 could be a red flag for more cautious investors.

Dividends Paid for Over 25 Years?

Whether a company has paid dividends consistently for over 25 years is crucial for evaluating its reliability and stability. Longevity in dividend payments often reflects sustained profitability and strong financial health, reassuring investors of consistent income.

Citizens Financial Group (CFG) has a record of paying dividends since 2014, as indicated by the data provided which shows dividends per share starting from 2014. Although the trend illustrates a steady increase in dividend payments from $0.1 in 2014 to $1.68 in 2023, the company's dividend payment history is considerably shorter than the 25-year criterion typically used to evaluate long-term reliability. Therefore, based on the given data, CFG does not meet the criterion of paying dividends for over 25 years. Nevertheless, the increasing trend in dividend payments over the last decade does indicate positive financial momentum and a commitment to returning value to shareholders.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases over the past 20 years refer to the company's ability to consistently buy back its own shares from the marketplace. This shows management's confidence in the company's future as it indicates excess cash flow and a desire to return capital to shareholders. It's crucial as consistent repurchases can help support the stock price and improve earnings per share (EPS).

Between 2011 and 2023, Citizens Financial Group exhibits periods of share repurchases, particularly from 2014 onwards. Share repurchase activity can be seen effectively reducing the number of outstanding shares from 559,998,324 in 2011 to 475,089,384 in 2023. Such a reduction represents approximately a 15% decrease over these years, which is materially significant. The average repurchase over these years is negative, indicating that the company has been actively reducing its share count. This trend is generally positive as it signifies the company's purposeful approach to returning value to shareholders through buybacks. However, the inconsistency in buybacks in years like 2011, 2012, 2013, 2022 suggests that there have been periods where the company may prioritize other uses for its cash flow or when it abstained from buybacks due to possibly external factors such as market conditions or regulatory constraints. Overall, the consistent buyback activity in many of the recent years should be seen as a good indicator for current and prospective shareholders seeking dividends and capital returns.