Last update on 2024-06-28

Dow (DOW) - Dividend Analysis (Final Score: 4/8)

In-depth Dow (DOW) dividend analysis scoring 4/8 using an 8-criteria system covering yield, growth, sustainability, and historical trends.

Short Analysis - Dividend Score: 4

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

In our assessment of Dow Inc. (DOW) using an 8-criteria scoring system, we found mixed results leading to a dividend score of 4 out of 8. Here's a breakdown: 1. Dividend Yield: Dow's current yield of 5.1058% is higher than the industry average of 4.85%, which is positive. 2. Dividend Growth Rate: Dow's historical average annual growth rate, mainly due to inconsistencies since it started issuing dividends in 2019, is below expectations. 3. Payout Ratio: Dow has maintained a sustainable average payout ratio of 31.1374%, though it has fluctuated significantly at times. 4. Earnings Coverage: Recent years show improved earnings coverage for dividends, reflective of an upward trend. 5. Cash Flow Coverage: The text emphasizes the importance of this criterion but doesn't provide a specific analysis for Dow. 6. Dividend Stability: While dividends have been stable since 2019, Dow's overall history lacks long-term stability. 7. Long-Term Dividend Payments: Dow does not have a 25-year history of dividend payments, having started consistently only in 2019. 8. Stock Repurchases: Dow has pursued inconsistent but sizable stock buybacks, mostly in recent years.

Insights for Value Investors Seeking Stable Income

Dow Inc. has shown promising recent performance concerning dividend yield and earnings coverage, but its short dividend history (since 2019) and fluctuations in payout ratios are concerning. Investors seeking long-term reliable dividend payers might find these recent inconsistencies troubling. Given these mixed signals, it might be worth investigating further if you're looking for high current yield but approach with caution if long-term consistency and extensive dividend history are critical to your investment strategy.

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

Dow's current dividend yield of 5.1058% is higher than the industry average of 4.85%. This can be seen as a positive signal, suggesting that Dow is offering a more attractive return compared to industry peers. Historically, Dow's dividend yield has shown variability, especially since it began issuing dividends in 2019. The trend of increasing dividend yield from 3.837% in 2019 to the present level reflects a commitment to returning value to shareholders, even though the dividend remains stable at $2.80 per share over the last four years. This sustained dividend, coupled with moderate stock price stability, underscores Dow's strong income-generating capability. While market conditions have introduced volatility, as evidenced during the pandemic phase reflected in 2020 and 2021, Dow's increased yield compared to its immediate past and industry benchmarks remains noteworthy.

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

Dividend Growth Rate indicates how much a company's dividend payments have increased over a specified period. A higher growth rate could be a sign of financial health and strong business performance.

The Dividend Ratio for Dow (DOW) has shown that there were no dividend payments for most of the 15 years displayed, except for a significant spike in 2020 with a Dividend Per Share Ratio of 33.3333%. This erratic pattern delineates an overall average dividend ratio of 2.22222, which indicates underperformance considering a 20-year analysis expects consistent growth above 5% annually. Thus, from the given data, it can be concluded that Dow has not maintained a steady high dividend growth rate over the years. Such inconsistency can be viewed negatively by income-focused investors as it lacks predictability and stability in dividend payments.

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

Payout ratio measures how much of earnings a company pays out in dividends. Keeping it below 65% ensures sustainability.

Over the last 20 years, Dow (DOW) has had an average payout ratio of 31.1374%, which is comfortably below the 65% threshold. This indicates that Dow has generally maintained a sustainable payout ratio, ensuring it retains enough earnings for growth and other opportunities. However, the negative payout ratios in 2019 and extreme values in subsequent years (such as -114.7353 in 2019 and 335.4901 in 2023) reflect volatility, which might concern investors in terms of consistency.

Dividends Well Covered by Earnings?

Dividends being well covered by earnings signify Financial health, ensuring the company can sustain payouts without jeopardizing its operational stability. A high dividend coverage ratio indicates sufficient earnings to cover dividends, providing reassurance to investors.

Examining Dow's (DOW) earnings per share (EPS) from 2013 onwards, a notable trend is visible. For years 2013-2019, the consistent EPS disrupted by fluctuations indicates challenges (EPS dropping to -1.8303 in 2019). Particularly, in 2013, EPS substantially covered dividends per share, showing significant earnings relative to dividends paid. However, by 2020-2022, earnings improved, evidenced by an EPS of 8.4871 in 2021. Yet, notably, the dividend cover ratio in 2020 fell to 1.6926 before recovering variably to 3.3549 in 2023. Over recent years, dividends remain covered (greater than 1). The ratio improvements are encouraging, though a negative indicator pops up in years with low EPS relative to dividends, implying financial strain exposure.

Dividends Well Covered by Cash Flow?

Importance of Free Cash Flow Coverage for Dividends

Free cash flow (FCF) is a critical metric for assessing a company's financial health and sustainability of its dividend payments. It reflects the cash a company generates from its operations after capital expenditures. Companies with solid FCF can comfortably cover dividend payments, indicating a lower risk of future dividend cuts.

Stable Dividends Since the Company Began Paying Dividends?

Dividend stability is essential for income-seeking investors as it provides a predictable cash flow and reflects the financial health of the company over time. A reduction of more than 20% in dividend payouts can indicate potential financial trouble or an unstable earnings base.

Analyzing the dividend per share (DPS) for Dow (DOW) over the past 20 years presents a trend where there were no dividends paid until 2018. From 2018 to 2023, the company maintained a consistent DPS of 2.1 to 2.8. However, the data shows that there was no reduction exceeding 20%, but given the lack of dividend payouts in the years before 2018, the overall dividend history is not particularly stable. A stable dividend history over a longer horizon is typically more attractive to investors; hence, the consistency since 2018 can be seen positively, but the years without dividends could be a deterring factor.

Dividends Paid for Over 25 Years?

The length of time a company has consistently paid dividends is often a sign of its financial health and shareholder reward strategy.

Since 2009, Dow (DOW) has only paid dividends consistently from 2019 onwards, amounting to 2.1 in 2019, 2.8 in 2020, 2.8 in 2021, 2.8 in 2022, and 2.8 in 2023. This indicates that the company doesn't have a historical precedent of paying dividends for over 25 years, which might raise concerns among investors looking for a long-term track record of dividend payments. Hence, this trend can be perceived as negative for this criterion. Long-term dividend history is often a safety net for investors looking for consistent returns, and DOW might not yet fully reassure these investors.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable Stock Repurchases Over the Past 20 Years

Delving into Dow's stock repurchases over the last two decades reveals an uneven but strategic approach. The company has recorded significant share buybacks in specific years: 2014, 2016, 2019, 2020, 2022, and 2023. The numerical data illustrates the reduction in shares outstanding from 1,612,307,700 shares in 2013 to 705,700,000 shares in 2023. This reduction is predominantly observed in years of notable repurchases. With an average repurchase rate of 12.582 over the given period, it underlines Dow's long-term strategy in optimizing shareholder value and signaling confidence in its financial health. One caveat is the intermittent nature of these repurchases which may raise questions about consistency. However, the trend is broadly positive.