Last update on 2024-06-27

Comtech Telecommunications (CMTL) - Dividend Analysis (Final Score: 4/8)

Explore an in-depth dividend analysis of Comtech Telecommunications (CMTL) with insights on dividend yield, payout ratio, stability, and stock repurchases.

Short Analysis - Dividend Score: 4

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

The dividend analysis for Comtech Telecommunications (CMTL) uses an 8-criteria scoring system and has awarded it a score of 4 out of 8. Here are the key findings: 1. **Dividend Yield**: The current yield is slightly lower than the industry average and has fluctuated greatly. The significant drop reduces attractiveness for income-focused investors. 2. **Dividend Growth**: While the average growth rate exceeds 5%, its highly inconsistent and volatile pattern is concerning. 3. **Payout Ratio**: At an average of 19.84%, it's much lower than the 65% benchmark, suggesting good retention for reinvestment, but extreme fluctuations indicate financial instability. 4. **Coverage by Earnings**: Dividends were often not well-supported by earnings, showing a negative trend. 5. **Coverage by Cash Flow**: Recently negative, suggesting financial stress. 6. **Stability**: Dividends were unstable with significant yearly drops, indicating a weak policy. 7. **Payment History**: Dividends only been paid for about 10 years, falling short of the 25-year mark. 8. **Stock Repurchases**: Inconsistent over the years, signaling unreliable returns.

Insights for Value Investors Seeking Stable Income

Given the analysis, potential investors should be cautious. The company's declining stock price, fluctuating dividend payments, high volatility, and short dividend history mark it as a risky option for those seeking stable, long-term income. If you are looking for reliable and consistent dividend returns, it may be better to look at alternative stocks with a stronger track record and more 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 is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price. It is an important measure for investors seeking income through dividends and also as an indicator of the stock's value. A consistent or growing dividend yield can indicate a mature company with steady earnings. However, an unusually high dividend yield could be a red flag, indicating potential financial trouble.

Comtech Telecommunications (CMTL) has a current dividend yield of 1.1862%, which is slightly lower than the industry average of 1.19%. Looking at the historical data over the last 20 years, CMTL's dividend yield has seen significant fluctuation, peaking at 10.1266% in 2016 and dropping to 1.1862% in 2023. The industry's average dividend yield has also fluctuated but has shown a decreasing trend in recent years, dropping from a high of 6.05% in 2021 to 1.19% in 2023. In terms of the stock price, CMTL has experienced a downward trend over the last 20 years, declining from $19.1933 in 2003 to $8.43 in 2023. This decline in stock price, combined with fluctuating dividend yields, indicates potential volatility and financial issues. The decrease in dividend per share from $1.2 in 2016 to $0.1 in 2023 shows that Comtech's ability to generate consistent shareholder returns through dividends has diminished. The current dividend yield, being close to the industry average, suggests that Comtech is not an outlier in its sector. However, the significant decrease over time could indicate financial instability or a strategic shift in capital allocation. Overall, this trend is concerning for potential dividend-focused investors given the volatility and declining trend.

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

The dividend growth rate assesses how much the dividend payouts have increased over time, indicating the company's commitment to returning value to shareholders.

Reviewing the Dividend Ratio numbers for Comtech Telecommunications (CMTL) from 2003 to 2023, we observe a highly inconsistent pattern. Key data points include a substantial increase from 0 to 310 in 2011, a sharp decrease to 34.1463 in 2013, and further inconsistent changes thereafter, including a significant drop to -75 in 2023. The average dividend ratio stands at 9.90%. While this average exceeds the 5% growth rate threshold, the wild fluctuations and negative values in certain years are alarming. This inconsistency is indicative of uncertainties within the company's dividend policy. Therefore, despite the average being over 5%, the trend is generally concerning for potential long-term income-focused investors.

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

The average payout ratio shows how much of a company's profit is paid out as dividends.

The average payout ratio of Comtech Telecommunications (CMTL) over the past 20 years is approximately 19.84%, which is significantly lower than the 65% benchmark. This trend is generally good because a lower payout ratio suggests that the company is retaining a larger portion of its earnings for reinvestment or other purposes. However, there have been years with extremely high payout ratios (e.g., 110.247% in 2011 and 141.2928% in 2020) as well as negative payout ratios, which indicate either financial losses or dividend payments exceeding net income. These aberrations warrant closer scrutiny. Nonetheless, the low average payout ratio demonstrates a capacity for sustainable dividend payments and potential for growth.

Dividends Well Covered by Earnings?

The coverage of dividends by earnings, typically assessed using the payout ratio (dividends per share divided by earnings per share), is crucial because it indicates if a company can sustain paying dividends from its earnings.

Analyzing the data from Comtech Telecommunications, it appears that their earnings per share (EPS) had a turbulent trend over the years. Initially, until 2009, their dividends were well supported by their earnings since the payout ratio was effectively zero until they first issued dividends in 2010. However, from 2011 to 2017, though they managed to maintain dividends, payouts sometimes hovered around or exceeded their earnings (evidenced by ratios around ~1). This raised concerns about their ability to sustain such dividends long-term. More critically, from 2018 to 2023, there's a clear struggle as indicated by EPS turning negative in 2017 and 2020-2023, leaving dividend payout ratios negative or uncomfortably high. This is a negative trend, as it demonstrates Comtech is paying out dividends not consistently backed by its earnings, suggesting potential financial or business model issues needing resolution.

Dividends Well Covered by Cash Flow?

Dividends well-covered by cash flow are crucial as it indicates the company generates sufficient internal funds to sustain dividend payments, signifying financial health and stability, and reducing reliance on external borrowing.

Throughout 2003 to 2010, Comtech Telecommunications (CMTL) paid no dividends, resulting in a coverage ratio of 0. Starting in 2011, the dividend payouts began while free cash flow remained variable. Notably, the coverage ratio demonstrates a fluctuating ability to cover dividends with cash flow: from ~0.22 in 2011 to a peak of ~2.08 in 2016. However, recent years showed negative coverage ratios because of negative free cash flows, -0.38 in 2023. This is concerning as they are paying dividends without sufficient cash, signaling potential financial stress and unsustainability. Continuous negative coverage will possibly affect long-term dividend payments.

Stable Dividends Since the Company Began Paying Dividends?

The criterion evaluates the stability in dividend payments, stressing that the dividend per share must not drop by more than 20% in any given year over the past 20 years.

Evaluating Comtech Telecommunications' historical dividend payments, evident concerns emerge regarding stability. Notably, there have been significant reductions beyond the threshold, pointing to some issues in their dividend policy over time. Remarkably, the dividend per share dropped from $1.375 in 2011 to $0.825 in 2012, representing approximately a 40% decline. While the dividend per share saw minor reductions from 2014 onwards, including drastic cuts in 2017 (dropping by 66.7%) and 2023 (a 75% reduction). This continued pattern raises questions on the robustness of their dividend payout strategy and financial health. Hence, income-seeking investors should be cautious, indicating an overall negative trend per this criterion.

Dividends Paid for Over 25 Years?

Determine if the company has maintained a record of paying dividends consistently for over 25 years. This is a criterion often used to gauge the stability and reliability of a company's return to its shareholders.

Based on the given data, Comtech Telecommunications (CMTL) has not paid dividends consistently over the past 25 years. The company started paying dividends only from 2012 onwards, implying a 10-year history of dividend payments. This is significantly short of the desired 25-year period. Additionally, the variability of the dividend payments, from no dividends to a high of 1.375 and then dropping down to 0.1 per share, is another point of concern. In 2023, the dividend was only $0.1 per share, marking a downward trend. This inconsistency in dividends and the limited history indicate a potentially unreliable dividend policy, which could be a red flag for investors seeking long-term, stable returns.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases signify a company's commitment to returning value to its shareholders, potentially increasing both share price and earnings per share.

Over the past 20 years, Comtech Telecommunications (CMTL) has shown varied trends in share repurchases. During the years 2011 to 2015, the company effectively reduced its shares from 32.62 million to 16.42 million, indicating substantial buybacks. However, overall share counts oscillated, showing an average growth rather than a consistent downtrend. Currently, the share count (28 million) exceeds levels from several repurchased years, which might suggest inconsistent prioritization of buybacks. This erratic trend is not a hallmark of reliable repurchasing practice, impacting the credibility of consistent shareholder returns.