Last update on 2024-06-27

Electronic Arts (EA) - Dividend Analysis (Final Score: 6/8)

Analyze Electronic Arts' (EA) dividend policy using an 8-criteria scoring system with notable metrics on yield, growth, and payout ratio.

Short Analysis - Dividend Score: 6

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

The dividend analysis of Electronic Arts (EA) using 8-criteria offers an insightful look into the company's dividend performance and stability. 1. **Dividend Yield**: EA's current yield of 0.5555% is lower than the industry average of 1.44%. The dividends began in 2020, with a moderate rise, indicating potential but needing improvement. 2. **Growth Rate**: EA did not pay dividends consistently over the last 20 years, disqualifying it from solid, long-term growth analysis. 3. **Payout Ratio**: With an average payout of 3.71%, EA's payout is sustainable and below the critical 65%, indicating strong financial health. 4. **Coverage by Earnings**: Initially weak, EA's dividends per share coverage by EPS has improved but still indicates caution. 5. **Coverage by Cash Flow**: EA shows an improving trend in covering dividends through cash flow, showing positive signs. 6. **Dividend Stability**: Since dividends began recently, long-term stability cannot be assessed conclusively. 7. **Historical Payments**: EA fails the criteria of 25 years of continuous dividend payments, with only recent dividend history. 8. **Stock Repurchases**: EA demonstrates periods of stock buybacks but with irregular regularity. Overall, EA has had impressive stock price growth with promising but relatively new dividend policies.

Insights for Value Investors Seeking Stable Income

As an investor, EA's dividend payouts are new and their sustainability is still proving itself. While their payout ratios, improving cash flow coverage, and tech industry position are encouraging, the dividends do not yet match the industry's average. The substantial growth in stock value reveals potential for long-term growth. However, for those prioritizing stable and long-established dividend stocks, EA might not yet be ideal. Thus, EA's dividends may intrigue growth-oriented investors, while traditional dividend-focused investors might stay cautious until a longer performance history is established.

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 the ratio of a company’s annual dividend compared to its share price. This metric is important to evaluate how much cash flow an investor is getting for each dollar invested in an equity position.

Electronic Arts (EA) has a current dividend yield of 0.5555%, which is lower than the industry average of 1.44%. Historically, EA has not been consistent in offering dividends, with yields emerging only in 2020 at 0.1184%. The company's trend shows a steady increase until 2022 and then a slight drop in 2023. Although the increase in yields is generally a positive sign, EA’s yield still lags behind the industry average. This suggests there is room for improvement. Additionally, EA's stock price has shown substantial growth, increasing from $47.68 in 2003 to $136.81 in 2023, indicating stock appreciation may be where EA offers more value to its investors rather than through dividends.

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

The Dividend Growth Rate over a specified period measures the annualized percentage rate of growth of a company’s dividend payments. It is significant to evaluate whether the company has been consistently increasing its dividends over time, which can be an indicator of the company's financial health, commitment to returning capital to shareholders, and sustainable profitability.

Based on the given data, Electronic Arts (EA) did not pay any dividends from 2003 to 2020. However, in 2021, EA issued a special dividend of $300 per share, followed by dividends of $8.8235 and $2.7027 per share in 2022 and 2023, respectively. When considering average dividend growth from 0 in early years to recent payouts, simplistic percentage growth calculation appears unrealistic due to initial value constraints (zero division issue). Therefore, EA's short-term dividend initiation and fluctuation can't confirm consistent longer-term growth above 5%, generally disfavoring the trend for solid long-term dividend growth criterion.

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

The average payout ratio is a crucial metric in dividend analysis as it indicates the portion of earnings a company pays out as dividends. A ratio above 65% might suggest potential financial stress, while a lower ratio indicates a sustainable dividend payout.

Electronic Arts' average payout ratio over the last 20 years stands at approximately 3.71%, significantly lower than the 65% threshold. This is a positive indicator of EA's financial health and its ability to sustain dividend payments. The data shows that EA did not pay out dividends for many years (evident with zeros up until 2020), with a payout ratio peaking only in recent years, reaching 26.64% in 2023. This shows a conservative approach towards dividend distribution, implying a strategy of reinvesting earnings back into the company, which could be beneficial for long-term growth.

Dividends Well Covered by Earnings?

This criterion assesses whether a company’s earnings per share (EPS) sufficiently cover its dividends per share, indicating financial stability.

From the data provided, Electronic Arts has had periods of negative EPS from 2008 to 2011, hence during these years, the dividend per share cover by EPS is not applicable. After termination of negative EPS, EA exhibits a rising dividend per share from 0.17 in 2020 to 0.76 in 2023. The EPS coverage of dividends shows improvement from 0.016 in 2020 to about 0.262 in 2023, demonstrating an augmenting capacity to cover dividends from its earnings despite overall modest coverage. However, a dividend cover ratio significantly above 1 indicates robust financial health, whereas EA’s ratios suggest only adequate but not strong dividend coverage, hence this trend is cautiously positive but needs vigilant observation moving forward.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow criterion evaluates whether a company has enough free cash flow to pay its dividends. It is crucial because it ensures the company can sustain its dividend payouts without compromising its financial stability.

For Electronic Arts (EA), the dividend coverage ratio by cash flow over recent years shows a trend from low to increasing figures of 15.64% in 2023. In early years, this ratio was non-existent or very low due to negligible dividend payout amounts despite having substantial free cash flow (e.g., 655 million in 2003). Notably, starting from 2018 EA began regular dividends, rising from 6.18% to a peak of 15.64% coverage by 2023. This upward trend indicates an improving ability to sustainably cover dividends through cash flow, signaling financial robustness and a commitment to returning value to shareholders, especially noteworthy given industry's high-operative-cash-flow nature. This is a positive trend.

Stable Dividends Since the Company Began Paying Dividends?

Explain the criterion for Electronic Arts (EA) and why it is important to consider

Stability in dividend payments, where the dividend per share did not drop by more than 20% over the past two decades, is of utmost importance for income-seeking investors. Over a 20-year span, consistent dividends indicate reliable income, key for portfolio stability.

Dividends Paid for Over 25 Years?

This criterion examines whether a company has consistently paid dividends for over 25 years. A long history of dividend payments indicates stability, reliability, and commitment to returning capital to shareholders, which is appealing to long-term investors.

Based on the data provided, Electronic Arts (EA) does not meet this criterion as they did not pay any dividends from 1998 to 2020. EA only began paying dividends in 2021 with a dividend per share of $0.17, which increased to $0.76 by 2023. While this recent trend of increasing dividends is promising, it does not fulfill the 25-year requirement and suggests the company's dividend policy is relatively new. Therefore, in terms of historical dividend payments, EA may not yet be considered a stable and reliable dividend-paying stock compared to those who have demonstrated this commitment over a much longer period.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases occur when a company consistently buys back shares over a long period, often indicating strong cash flow and a commitment to returning value to shareholders.

Looking at the share numbers provided for Electronic Arts (EA) over the past 20 years, the trend in stock repurchases is somewhat inconsistent. The company has seen reliable repurchase activities specifically in the years 2006, 2008, 2013, 2017, 2018, 2019, 2020, 2021, 2022, and 2023. During these periods, the number of outstanding shares decreased, reflecting buyback activities. For example, the number of shares went down from 314 million in 2017 to 277 million in 2023, indicating a notable reduction. This accounts for an average repurchase rate of -0.2365 over the 20 years. Although this average suggests an overall reduction in shares, which is good for per-share metrics, the inconsistency in buyback periods may signal fluctuating cash flows or changing priorities for capital allocation. Thus, while the long-term trend appears positive, the irregularity makes it less reliable.