Last update on 2024-06-27

PC Connection (CNXN) - Dividend Analysis (Final Score: 3/8)

In-depth analysis of PC Connection's (CNXN) dividend policy. Evaluates key criteria including yield, growth, payout ratio, earnings coverage, and stability.

Short Analysis - Dividend Score: 3

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

PC Connection (CNXN) has been evaluated against an 8-criteria dividend analysis system. The company's dividend yield is significantly lower than the industry average and has shown volatility over the last 20 years. The average dividend growth rate is negative, reflecting a downward trend in dividend payouts. The payout ratio is well below the 65% threshold, indicating a conservative dividend policy. Dividends are well-covered by earnings, but there are concerns about cash flow coverage. PC Connection has not consistently paid dividends for over 25 years and has shown instability in dividend payments. However, the company has engaged in reliable stock repurchases, indicating a commitment to returning value to shareholders.

Insights for Value Investors Seeking Stable Income

Given the analysis, PC Connection (CNXN) may not be the best choice for investors seeking stable and growing dividend income. The inconsistent dividend payments and lower yield compared to the industry average might be concerning. However, the conservative payout ratio and reliable stock repurchase program indicate some positive aspects. Potential investors might still consider other stocks with a more stable and higher dividend yield.

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 helps investors understand how much cash flow they might expect from holding a stock, based solely on dividends. A higher dividend yield might indicate a company is sharing more of its profits with its shareholders.

PC Connection (CNXN) currently has a dividend yield of 0.4761%, which is significantly lower than the industry average of 2.91%. Looking at the last 20 years, the company's dividend yield has experienced significant fluctuations, reaching a peak of 3.6069% in 2011 but has since seen a downward trend. The low dividend yield since 2019 suggests the company has been paying out a smaller portion of its earnings as dividends compared to its peers. This could be seen as a negative trend for investors looking for dividend income, as the company may not be generating sufficient cash flow or profits to support higher dividends.

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

The Dividend Growth Rate indicates the annualized percentage rate of growth that a company's dividend undergoes over a certain period. This metric is crucial for determining the sustainability and growth potential of future dividend payments. An annual growth rate above 5% is usually considered healthy.

Examining the dividend data for PC Connection (CNXN) over the last 20 years, we find significant volatility in the dividend growth rates. The values provided show multiple years with zero dividends paid and instances of drastic negative dividend growth rates, such as -100% in 2020. Notably, in certain years, there are positive spikes like 5.2632% in 2013 and -5.8824% in 2019 and 2023. Nevertheless, the overall average dividend growth rate of -9.5592% is a clear indication of declining dividends when averaged over two decades. This overall trend is unfavorable, as it reflects a failure to achieve the benchmark 5% growth rate. Therefore, the dividend growth rate criterion has not been met by PC Connection, marking this trend as unfavorable for long-term dividend sustainability and growth potential.

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

The payout ratio represents the proportion of earnings a company pays to its shareholders in the form of dividends. If the ratio is below 65%, it suggests that the company is retaining enough earnings to fund growth, manage debt, or other financial obligations. It indicates financial health and sustainability.

Over the last 20 years, PC Connection (CNXN) has maintained a payout ratio well below the 65% threshold, with an average payout ratio of 13.0308%. This low figure denotes a conservative dividend policy, indicating that the company has retained a significant portion of its earnings for reinvestment into business operations, debt management, or future growth initiatives. Such a low payout ratio is generally a positive sign for the long-term sustainability and health of the company, as it suggests management's focus on reinvesting profits to enhance shareholder value rather than distributing a larger portion of earnings as dividends. Additionally, the sporadic payout ratio increases, such as in 2021 and 2022, reflect adaptive management in response to profitability, still keeping it far below the 65% mark.

Dividends Well Covered by Earnings?

This criterion evaluates if the company's earnings/per share are adequate to cover dividend distributions, ensuring sustainable payouts without compromising financial health.

Analyzing PC Connection (CNXN), we observe that in the years 2010-2023, earnings per share (EPS) have consistently exceeded the dividends paid per share (DPS), reflecting a healthy earnings-to-dividend coverage ratio. Especially notable are EPS values peaking at $3.3951 in 2022 and $3.1179 in 2019, contrasted with relatively lower and erratic DPS, including a notable absence of dividends in 2020, which signifies strong earnings stability but inconsistent dividend policy. The consistent cover reflects resilience and capacity to maintain and grow dividend payouts. The dividend cover ratio notably peaked at around 49.46% in 2021, indicating robust coverage. Thus, CNXN’s dividends are well covered by earnings, signaling a sound financial position, though the payout remains conservative for safeguarding earnings. Proven good profitability and prudent dividend distribution support sustained investor returns and financial stability.

Dividends Well Covered by Cash Flow?

Dividends Well Covered by Cash Flow is a metric assessing if a company's free cash flow can adequately cover its dividend payouts. It's crucial, as it indicates the sustainability of dividend distributions.

Dividends well covered by cash flow is slightly concerning for PC Connection (CNXN) based on historical data. Starting with no dividends from 2003 to 2008, the company initiated dividend payments in 2009. However, the ratios indicate fluctuations and concerns. For instance, in 2009, the dividend payout was -49.6% of free cash flow, marking an unsustainable payout trend. Although there were improvements in specific years, the figure in 2023 is just 4.46%. Dips in the ratio show inconsistent coverage that might point towards underlying issues in utilizing cash efficiently for dividends, raising questions how robust these distributions might be long-term.

Stable Dividends Since the Company Began Paying Dividends?

Explain the criterion for PC Connection (CNXN) and why it is important to consider

Stable dividends over the past 20 years are critically important for income-seeking investors. Stability signifies reliability and the company's consistent ability to generate cash flow to distribute to shareholders. A drop by more than 20% could signal financial instability or unforeseen setbacks.

Dividends Paid for Over 25 Years?

The criterion checks if the company has consistently paid dividends to its shareholders for over 25 years. Consistent dividends may signal financial stability and reliability.

PC Connection (CNXN) has not consistently paid dividends for over 25 years. From 1998 to 2011, the company did not distribute any dividends. Dividend payments commenced in 2012 with an amount of $0.4 per share. However, the company had a year without dividends in 2020 and experienced fluctuations in the per-share amounts. Notably, a significant dividend of $1.32 per share was paid in 2021. Therefore, CNXN fails to meet the criterion of paying dividends for over 25 years consistently and exhibits irregular dividend payments. This inconsistency may concern long-term income-focused investors seeking steady dividend returns.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases indicate a commitment by the company to return value to its shareholders and signal confidence in its future performance.

Over the past 20 years, PC Connection (CNXN) has engaged in reliable stock repurchases during several years, specifically in 2008, 2009, 2011, 2012, 2013, 2018, 2019, and 2020. Throughout this period, a gradually decreasing number of shares suggests that CNXN has committed to periodically buying back its shares. The average repurchase of 0.2373 over 20 years appears modest yet consistent. Given that the trend shows multiple years with a reduction in shares, it can be deduced that CNXN's approach aligns with shareholder-friendly policies. These repurchases could be viewed as a good trend, as they often reflect management's confidence in the company's financial health and may also help support the stock price.