Last update on 2024-06-27

Cognex (CGNX) - Dividend Analysis (Final Score: 5/8)

In-depth analysis of Cognex (CGNX) dividend performance. Evaluate financial health, growth, and sustainability through an 8-criteria system. Score: 5/8.

Short Analysis - Dividend Score: 5

We're running Cognex (CGNX) 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 reflects the return on investment through dividends expressed as a percentage of the stock price.

Cognex's dividend yield for 2023 is 0.6828%, which is slightly lower than the sector average of 0.75%. Observing the trend over the last 20 years, Cognex has experienced fluctuations in its dividend yield, peaking at 4.1859% in 2012 and showing significant volatility. Although the current yield is below the industry standard, the company has a history of paying dividends, rebounding from occasional suspensions (e.g., 2013 and 2014). Additionally, Cognex's stock price has demonstrated long-term appreciation, moving from $7.0725 in 2003 to $41.74 in 2023. Thus, while the current dividend yield may seem lackluster, the potential for capital gains can compensate for the lower yield, making it a potentially good opportunity for investors.

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

The dividend growth rate measures the annualized percentage rate of growth in a company's dividend over time. A growth rate higher than 5% is generally considered strong, indicating robust financial health and a commitment to returning value to shareholders.

Based on the provided data spanning from 2003 to 2023, Cognex exhibits a highly fluctuating dividend per share ratio, with values ranging from -88.9888% to 985.3659%. The average dividend ratio is approximately 68.93%, which superficially seems to exceed the 5% benchmark significantly. Despite negative and zero values in certain years, the data does hint at some degree of dividend growth over time. A particularly notable year was 2020, where the dividend per share ratio surged to 985.3659%, a sign of a one-time significant dividend increase. However, we should note the considerable volatility in the ratios, complicating a straightforward assessment. Over the long term, an average of 68.9338% would indeed signify a robust dividend growth, but the presence of substantial negative dips warrants careful consideration. Stakeholders should review the company's specific reasons for the erratic dividend changes in various years for more insights.

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

The average payout ratio reflects the proportion of earnings a company distributes to its shareholders in the form of dividends. A ratio lower than 65% suggests a balance between rewarding shareholders and reinvesting in the business, which is sustainable.

The average payout ratio for Cognex over the last 20 years stands at 27.77%, which is well below the 65% threshold. Although there were some years with extraordinary values, such as 2010 (-244.30%) and 2020 (219.10%), these appear to be outliers likely due to unusual circumstances, such as one-time expenses or gains. The majority of the years demonstrate a conservative approach to dividend payouts, especially with several years recording ratios significantly under 30%. This trend is positive as it indicates that Cognex likely has been successful in managing its earnings distribution efficiently, striking a good balance between dividend payments and retaining earnings for growth and stability.

Dividends Well Covered by Earnings?

Dividends should ideally be well covered by the earnings, measured by the Dividend Payout Ratio (DPR). DPR indicates the proportion of earnings a company pays shareholders in dividends. A ratio below 60% is generally considered safe and sustainable.

Analyzing the historical data for Cognex (CGNX), we see a mixed trend in the dividends being covered by earnings per share (EPS). The DPR (Dividends per Share covered by EPS) has fluctuated greatly. For instance, in 2009, the ratio was alarming at -2.44 due to a negative EPS while in some years like 2016 and 2017, the DPR was well below 60%, indicating healthy coverage. The year 2020 was peculiar due to a huge special dividend, inflating the ratio to 2.19. Recent data from 2023 shows a DPR of 0.43, suggesting that dividends are adequately covered by EPS this year. This mixed historical trend suggests that while recent years indicate good coverage, investors should stay cautious of potential fluctuations.

Dividends Well Covered by Cash Flow?

What does it mean for dividends to be well covered by cash flow and why it is important?

Free Cash Flow and Dividend Payout Amount provide critical insights into Cognex's (CGNX) financial health. Over the past two decades, the Free Cash Flow (FCF) has typically trended upward, reaching a peak of $231.48 million in 2019 before dropping to $89.84 million in 2023. Concurrently, the Dividend Payout Amount has been relatively smaller and more stable but with an increased payout of $390.51 million in 2020. The metric 'Dividend Covered by Cashflow' indicates the ratio of Free Cash Flow to Dividend Payout Amount. A ratio below 1 signals that the dividends are not entirely covered by the cash flow, which may pose risks. For instance, in 2021, the ratio was a healthy 1.7045, but it dropped to 0.5463 in 2023, suggesting dividends are now less secure. Overall, the dropping rate tells us that while the company had periods of strong dividend coverage, its recent trend signals potential issues in maintaining such payouts if FCF doesn’t recover. This recent decline is worrisome and suggests the company may face challenges in generating sufficient cash flow to cover its dividends.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends over a long period show that the company consistently generates enough cash flow to sustain payouts.

Cognex has shown inconsistency in its dividend payouts over the past 20 years. For instance, dividends were halted in 2012 and 2013. However, there has been significant growth until 2023, where the dividend per share reached $0.285 compared to a meager $0.03 in 2003. Despite these interruptions, there hasn't been a drop by 20% in a single year, indicating an improvement. While it's not perfect, the trend is upward, which bodes well for long-term investors seeking income.

Dividends Paid for Over 25 Years?

Dividends paid for over 25 years.

The table indicates that Cognex has only been paying dividends since 2003. This disqualifies them from meeting a 'dividends paid for over 25 years' criterion. This trend is unfavorable if you are seeking companies with long-term dividend histories. Cognex's dividend history is relatively short, which could be seen as a drawback for investors looking for stability and a proven track record. Paying dividends for 25 consecutive years is a hallmark of reliability and speaks to a company's ability to generate consistent cash flow and financial stability. Unfortunately, Cognex falls short here.

Reliable Stock Repurchases Over the Past 20 Years?

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

Reliable Stock Repurchases indicate a company’s commitment to returning value to shareholders. It often hints at strong financial health and optimistic future prospects since companies typically repurchase shares when they're confident in their financial condition and believe their stock is undervalued. Regular repurchases can help increase earnings per share (EPS) by reducing the number of shares outstanding, enhancing shareholder value.