Last update on 2024-06-27

Cigna (CI) - Dividend Analysis (Final Score: 7/8)

Analyze Cigna's (CI) impressive dividend performance using our extensive 8-criteria analysis scoring system, delivering a final score of 7 out of 8.

Short Analysis - Dividend Score: 7

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

Cigna (CI) has a strong and improving dividend policy, scoring 7 out of 8 on the criteria system. Its dividend yield of 1.643% is significantly higher than the industry average of 0.87%, showing a positive trend in returning value to shareholders. However, the company's dividend growth rate has been inconsistent, ranging drastically over the past 20 years, posing some concerns for stable income investors. The average payout ratio is extremely low at 5.66%, indicating a conservative approach and plenty of room for reinvestment. Cigna’s dividends are well-covered both by earnings and free cash flow, ensuring sustainability. While there were some significant drops in dividends during the early 2000s, stability has been impressive since 2018, reaching $4.92 per share in 2023. The company has been paying dividends for over 25 years and has engaged in reliable stock repurchase programs, showcasing confidence in its financial health and future potential.

Insights for Value Investors Seeking Stable Income

Cigna presents a strong case for dividend-seeking investors, especially considering its high yield compared to the industry average and the solid coverage of dividends by both earnings and free cash flow. Despite the early volatility in dividend payments, the steady increase after 2018 indicates a robust and improved dividend strategy. Therefore, it is worth considering for investment, particularly for those who prioritize financial health and stable returns.

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 represents the ratio of dividends per share to the stock price. It is an important measure for investors as it indicates the return on investment from dividends alone. A higher dividend yield suggests that a company is returning more dividends to its shareholders relative to its stock price.

Cigna's current dividend yield stands at 1.643%, which is significantly higher than the industry average of 0.87%. Over the last 20 years, Cigna's dividend yield has generally been lower than the industry average, with a notable spike in recent years. For instance, in 2021 the dividend yield was 1.7419%, and in 2022 it was 1.3521%. This trend indicates a strong improvement in Cigna's dividend yield relative to its historical performance, suggesting that the company has become more committed to returning value to its shareholders through higher dividends. However, it's essential to consider this increase alongside the stock price movements and the broader economic conditions to determine its sustainability.

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

The Dividend Growth Rate (DGR) measures how much a company's dividend payouts have increased over a specific period. Analysts often look for a DGR above 5% to gauge whether a company is likely to continue growing its dividends.

Cigna's Dividend Growth Rate over the past 20 years appears volatile, with significant negative values and sporadic high positive spikes. Notably, the -69.3182%, -75.3339%, and 9900% values are anomalous and skew the average Dividend Growth Rate to 466.504%. These values suggest irregular dividend payouts, indicating inconsistency which is generally a bad trend for stable income-seeking investors. A more reliable conclusion could be drawn if the company demonstrated steady and consistent dividend growth above 5% consistently over the years. The erratic nature of the dividends hints at a lack of commitment to regular dividend payments or reflects other underlying financial strategies, which warrants a deeper investigation.

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

Criterion 1.2 examines the average payout ratio over an extended period, typically 20 years, to determine a company's long-term sustainability in returning profits to shareholders. A lower payout ratio, preferably under 65%, indicates a company's ability to sustain and potentially grow its dividends, as it retains more earnings for reinvestment.

Cigna's average payout ratio from 2003 to 2023 is approximately 5.66%, which is significantly lower than the benchmark of 65%. This trend is favorable for a few reasons. Firstly, it signifies that Cigna has a conservative approach towards dividend disbursement, retaining a substantial portion of its earnings for reinvestment into the business, which can foster growth and stability. Moreover, with such low payout ratios, the company is less likely to face financial strain during economic downturns, ensuring more stable dividends. The payout ratios vary significantly over the years, but consistently remain well below 65%, highlighting Cigna's robust financial strategy. While some years, particularly around economic downturns or company-specific events, exhibit higher ratios, the overall trend suggests strong fiscal management and shareholder value preservation.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings.

The key to ensuring the sustainability of dividend payouts is the ability of a company to cover its dividend obligations with its earnings. This can be measured via the Dividend Coverage Ratio (DCR), calculated as Earnings per Share (EPS) divided by Dividends per Share (DPS). A high ratio generally indicates that the company generates sufficient profit to cover its dividend payouts, which is crucial for maintaining and potentially increasing dividends in the future. It also serves as a cushion during economic downturns, thus ensuring stable dividend payments.

Dividends Well Covered by Cash Flow?

Covering dividends with cash flow ensures the company's sustainability and the ability to keep rewarding shareholders in the long term without needing to take on more debt or cut dividends.

Analyzing the trend provided for Cigna’s free cash flow and dividend payout from 2003 to 2023, a noteworthy pattern appears. The ratio of dividends covered by free cash flow has generally been low, indicating that in most years, only a tiny fraction of free cash flow was used for dividends. Notably, from 2015 onwards, dividends weren’t paid until 2018 and became a significant payout from 2019 through 2023. The ratio spiked to 22.21% in 2021 but then saw a decrease in subsequent years to 18.8% and further to 14.16% in the latest year, reflecting an ample cash flow buffer covering these higher payouts comfortably. The increase in the absolute amount of free cash flow over time amplifies this coverage ability. This trend is favorable as it indicates that Cigna’s high free cash flow relative to dividends shows strong financial health and sustainability, suggesting the company is well-positioned to maintain or potentially grow its dividend payouts in the future without risking its operational stability.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends over the past 20 years refer to the company's ability to maintain consistent or growing dividend payments year over year without significant cuts. A drop of more than 20% in any year within the past two decades indicates volatility and potential concerns for income-driven investors.

Examining Cigna's (CI) dividend per share data from 2003 to 2023, there are noticeable challenges in stability. Specifically, the dividends significantly dropped from $0.44 in 2003 to $0.135 in 2004, and further down to $0.0333 in 2005. However, from 2006 onwards, the dividends remained stable at $0.04 until 2018 where there was a significant rise to $4 in 2019, continuing to grow to $4.48 in 2021 and $4.92 in 2023. Despite some volatility in early years, the dividends have shown remarkable growth once stabilized, with no further drops of more than 20% after initial decline. Hence, those initial volatile years mark a concern but the steadiness observed later carries investment confidence.

Dividends Paid for Over 25 Years?

Consistently paying dividends for over 25 years. Indicates company's financial stability and commitment to returning value to shareholders.

Cigna has consistently paid dividends from 1998 to 2023, demonstrating a strong 25-year stretch of returning value to its shareholders. Initially, dividends per share witnessed minor fluctuations from 1998 to around 2006, after which there was a significant consistency of $0.04 per share up to 2020. A noteworthy uptick occurred in 2021, with dividends shooting up to $4 per share and increasing further to $4.92 by 2023. This substantial rise reflects a robust and confident financial strategy, marking a positive and aggressive dividend policy initiative that came into effect post-2020. Overall, Cigna showcases impressive dividend growth and stability, suggestive of a financially sound and shareholder-friendly company.

Reliable Stock Repurchases Over the Past 20 Years?

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

The criterion of reliable stock repurchases refers to a company's historical consistency in buying back its own shares from the open market. This is an important aspect to consider as it often indicates that the company is confident in its own potential and believes that reinvesting in itself is a good use of funds. It can also reduce the number of shares outstanding, potentially increasing earnings per share (EPS) and subsequently boosting the stock price.