Last update on 2024-06-27

D.R. Horton (DHI) - Dividend Analysis (Final Score: 5/8)

Explore a comprehensive dividend analysis of D.R. Horton (DHI), scoring 5 out of 8 based on performance and stability using an 8-criteria system.

Short Analysis - Dividend Score: 5

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

The dividend analysis scores D.R. Horton (DHI) a 5 out of 8 on an 8-criteria system assessing dividend performance and stability. Here's a breakdown: 1. **Dividend Yield**: D.R. Horton's yield is 0.69%, lower than the industry average of 2.59%, which might indicate the company prioritizes reinvestment over dividends. 2. **Average Annual Growth Rate**: Over the last 20 years, the company has inconsistent dividend growth due to previous financial crises, but an average growth rate of 17.8%. 3. **Payout Ratio**: Their average payout ratio of 10.59% is well below the 65% threshold, indicating sustainable dividend payments. 4. **Earnings Coverage**: Dividends are mostly well-covered by earnings, demonstrated by a stable EPS recovery post-2009 financial crisis. 5. **Cash Flow Coverage**: Free cash flow ratios indicate inconsistent coverage, with improvement post-2013 but recent declines. 6. **Dividend Stability**: They've maintained dividends with growth despite occasional cuts. 7 and 8. **Long-term Payments and Repurchases**: D.R. Horton has a history of paying and periodically increasing dividends, and a pattern of reliable stock repurchases, reflecting confidence in the company.

Insights for Value Investors Seeking Stable Income

Given D.R. Horton's mixed performance on various criteria, potential investors with a focus on steady dividend income might find better candidates elsewhere. However, those prioritizing capital appreciation alongside moderate dividend growth could consider this stock. The company shows sound financial management and resilience in earnings, with conservative payout policies indicating long-term sustainability.

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 a company's annual dividend compared to its share price.

D.R. Horton's current dividend yield of 0.69% is considerably lower than the industry average of 2.59%. Historically, DHI's dividend yield has shown significant variability, from highs of around 4.78% in 2008 to lows as seen in the most recent year. The lower yield indicates that the company is currently providing lesser dividend income relative to its share price when compared to its industry peers. However, this could also signify the company's focus on reinvesting earnings back into growth rather than distributing them as dividends. Given the high stock price increase, investors might be contended with capital appreciation over dividend yields.

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

The Dividend Growth Rate criterion focuses on assessing whether a company's dividends per share have increased by an average of at least 5% per year over a specified period, typically 20 years. This is important as it reflects the company’s ability to generate consistent revenue and profit growth, as well as a commitment to returning value to shareholders.

D.R. Horton's dividend growth rate over the last 20 years, as shown by the varying dividend per share ratios, does not exhibit a steadily increasing trend. Despite certain years of substantial growth (e.g., 2004 with 71.4286% and 2012 with 98.0263%), there are also notable instances of dividend reduction or complete suspension (e.g., 2008 with -43.6667% and 2009-2010 at 0%). The average dividend ratio stands at 17.8034%, which indicates respectable growth overall, but the inconsistency in yearly performance undermines the reliability of achieving a stable dividend increase of more than 5% annually. This mixed trend could be viewed as concerning for investors seeking reliable dividend growth.

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

Criterion 1.2 assesses the sustainability of a company's dividend payments by examining its payout ratio over an extended period. A payout ratio below 65% indicates that the company is not overextending itself in paying dividends, thus providing a cushion to maintain dividends even during downturns. This is important for long-term investors seeking reliable income.

The payout ratio for D.R. Horton (DHI) over the last 20 years averages to approximately 10.59%, which is significantly lower than the threshold of 65%. This is a positive trend as it shows that the company maintains a conservative approach to dividend payments and has a substantial buffer to continue payments even in less profitable years. Notably, years like 2009 and 2008 show negative payout ratios due to possibly net losses, indicating prudent financial management by not incurring dividend obligations under financial distress. Overall, D.R. Horton's low payout ratio suggests a healthy sustainability of its dividend policies.

Dividends Well Covered by Earnings?

The earnings per share (EPS) should consistently exceed the dividends per share (DPS) to ensure the company can sustain its dividend payments from its earnings.

When scrutinizing D.R. Horton's EPS and DPS data over the last two decades, several trends emerge which warrant discussion. The ratios provided present a story of fluctuating earnings but generally well-managed dividends relative to earnings ever since significant losses during the financial crisis from 2007 to 2009. Starting at minimal coverage around these years (-0.264 in 2007 and -0.040 in 2008), the company has shown resilience and a robust recovery, propelling its EPS to significant heights in recent years (e.g., 11.564 in 2021, 16.654 in 2022). By 2023, the dividend-to-earnings coverage seems robust at 0.075, indicating a strategic and cautious approach to dividend payments relative to its earnings. This conservative habit ensures short-term liquidity and long-term growth sustainability while still providing shareholder returns. Overall, the upswing in earnings power paired with judiciously raised dividends suggests prudent fiscal stewardship. It's a good trend, adopting calibrated payouts in ensuring dividend coverage from earnings, thus securing investor confidence.

Dividends Well Covered by Cash Flow?

Dividend coverage ratio by cash flow specifies how well the company can cover its dividend payments using its free cash flow. It's essential as it measures sustainability.

An analysis of D.R. Horton's free cash flow and dividend payout amounts from 2003 to 2023 indicates a notable variation in the company's ability to cover dividend payments by cash flow. The trend reveals the following insights: In the initial years (2003-2006), the coverage ratio was slightly positive, though quite close to 1.00. From 2007 to 2012, the ratios were significantly negative due to negative free cash flows, indicating the company's inability to cover dividends from its cash flow. This is a critical red flag, as depending on debt or other financial sources to cover dividends is unsustainable. From 2013 onward, the company shows improvements in the coverage ratio, with several positive values, culminating in a peak ratio of 1.083 in 2021. However, the ratio fluctuates notably and drops to 0.082 in 2023, suggesting that while D.R. Horton has improved its financial stability on average, it still faces inconsistencies. A consistently high positive coverage ratio is indicative of healthy financial management and sustainability in dividend payments.

Stable Dividends Since the Company Began Paying Dividends?

Why is it crucial to consider stability in dividends over the past 20 years for a company like D.R. Horton (DHI)?

Stable dividends are pivotal for income-seeking investors who rely on consistent cash flows. Over two decades, D.R. Horton's dividends per share have fluctuated, with notable reductions in 2007 (0.6 to 0.338), 150% increase in dividend in 2012, and multiple consistent increases thereafter. Although there were brief periods of decreases, they did not drop by more than 20% in any given year and have shown a clear upward trend overall. These fluctuations could suggest strategic financial decisions rather than fundamental weaknesses.

Dividends Paid for Over 25 Years?

dividends paid for over 25 years

Dividends Paid for Over 25 Years indicates a company's stability and financial health. It signals the company's ability to consistently generate earnings and maintain sufficient cash flows to reward shareholders over a long period, which is crucial for long-term investors.

Reliable Stock Repurchases Over the Past 20 Years?

Explain the criterion for D.R. Horton (DHI) and why it is important to consider

Reliable stock repurchases suggest a company's confidence in its financial health and future growth. They can signal to investors that the company views its own stock as undervalued, thus investing in itself. By repurchasing shares, a company effectively returns value to its shareholders as the total number of shares outstanding is reduced, increasing the value of remaining shares.