Last update on 2024-06-28

Edison (EIX) - Dividend Analysis (Final Score: 5/8)

Dive into Edison (EIX): A comprehensive analysis of its dividend performance, covering key metrics like yield, growth rate, payout ratio, and earnings coverage.

Short Analysis - Dividend Score: 5

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

Edison's dividend analysis yields a score of 5 out of 8, showing strengths and weaknesses. The dividend yield, at 4.188%, is higher than the industry average, making it attractive for income-focused investors. However, the yield's volatility is worth noting. Despite an average dividend growth of 20.14%, fluctuations with significant negative values and improbable spikes reveal instability. The average payout ratio of 24.03% is favorable but prone to extreme values, raising questions about consistency. Dividend coverage by earnings shows short-term improvements but increased volatility and recent downturns. Additionally, poor cash flow coverage marks a concerning trend, indicating potential financial strain. On the bright side, Edison has maintained stable dividends for over 20 years without severe cuts and has been paying dividends for nearly 25 years, with minor early-2000s gaps. However, lack of reliable stock repurchases detracts from shareholder value enhancement.

Insights for Value Investors Seeking Stable Income

Edison (EIX) offers a higher-than-average dividend yield, stable dividends without major cuts, and a decent payout ratio, making it appealing for income-focused investors. However, caution is warranted due to volatility in dividend growth, inconsistent earnings coverage, and negative cash flow coverage, which might signal financial strain. The lack of consistent stock repurchases also detracts from overall attractiveness. Investors may consider Edison as part of a diversified portfolio but should closely monitor financial performance and sustainability indicators.

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 relative to its stock price. A higher yield indicates a potentially higher return.

Edison's current dividend yield of 4.188% is significantly higher than the industry average of 3.12%, which can be seen as favorable for income-focused investors. Over the last 20 years, Edison's dividend yield has shown considerable fluctuation, with peaks as high as 8.5529% in 2018 and troughs below 2%. This volatility in the dividend yield is largely reflected by the corresponding fluctuations in stock prices and variations in dividend per share. With a trend favoring a higher-than-average yield in the recent years, this suggests a potential for better income returns for investors compared to its industry peers. However, stakeholders should also be cautious about the reasons behind these peaks, as extremely high yields could indicate possible underlying issues like a significant decline in stock price or unsustainable dividend payouts.

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

The Dividend Growth Rate criterion generally aims for a consistent annual rise in dividends, indicating healthy, increasing profits. A rate over 5% per annum over 20 years underscores robust performance.

Analyzing Edison's (EIX) dividend growth rate over the past 20 years reveals fluctuating dividend percentages, including significant examples of negative values and improbably high spikes. The non-stable figures, like -44.464% in 2010 and 241.9608% in 2017, signify volatility, influencing the overall average ({20.14%}) less meaningfully. These inconsistencies undermine the significance of this growth rate trend. While an average of 20.14% might seem promising, its underlying volatility diminishes its reliability for prospective dividend consistencies. Therefore, Edison's trend does not conclusively position it within the 'good' threshold of consistent annual growth above 5%.

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

The payout ratio measures the percentage of earnings a company pays to its shareholders in dividends. A payout ratio lower than 65% generally indicates a sustainable dividend distribution.

From the data provided, Edison (EIX) has an average payout ratio of approximately 24.03% over the last 20 years. However, the listed payout ratios show frequent instances where the payout ratio dropped to 0%, coupled with some extraordinary high values like -262.0358, 220.6329, and 220.8528. It's important to note that zero values could indicate either years with no dividends or instances where earnings were extremely low or negative. The negatively proportionate payout ratios such as -262.0358 could signify significant accounting losses which, however, didn't hinder the dividend payments. Nonetheless, the average ratio being well under 65% signals a general trend towards cautious and sustainable dividend disbursements. Overall, this trend is favorable, showing prudence though the extreme values should be periodically investigated for underlying causes.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings

The ratio of EPS to dividend per share serves as an essential metric for assessing a company’s financial health and sustainability of its dividends. For Edison (EIX), we notice a sharp inconsistency over the past decade. In 2019, the cover ratio was 1.198, and in 2020, it improved substantially to 2.206, indicating greater dividend sustainability and a positive trend. However, in 2021 and 2022, the ratio hovered around 2.208 and 1.105 respectively, suggesting that despite robust EPS, dividend safety waned in 2022 as compared to the previous year. The dramatic drop to 0.815 in 2023 indicates a reduced coverage which can signal potential stress in covering dividends through earnings alone—a concerning trend for investors focused on dividend reliability. Therefore, while notable improvements have been made since 2018, the volatilities and recent downturn warrant caution.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow indicate a company’s ability to consistently pay dividends from its generated cash, ensuring long-term sustainability and financial health.

Analyzing Edison's (EIX) free cash flow against its dividend payout amounts reveals concerning trends. Over multiple years, particularly since 2018, EIX has shown negative free cash flow, coupled with substantial dividend payouts. For example, in 2023, the free cash flow was negative $2.05 billion, while the dividend payout was about $1.22 billion, leading to a coverage ratio of -0.60. Such ratios consistently below 1 (even negative) suggest that dividends are not well-covered by cash flow. This trend raises red flags about the sustainability of current dividend levels and might indicate potential financial strain or future dividend cuts/reductions if the situation persists. Investors should approach with caution and monitor upcoming cash flow reports for any signs of improvement.

Stable Dividends Since the Company Began Paying Dividends?

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.

Edison (EIX) has shown remarkable stability in its dividend payments over the past 20 years. Reviewing the data for the years 2003 to 2023, there is no evidence of a drop in the dividend per share by more than 20% in any single year. This stability is particularly commendable for income-seeking investors who prioritize consistent dividend income. For instance, in 2021, the dividend per share was $5.152, which increased modestly to $5.376 in 2022. Even periods of financial challenges, such as 2008 and 2009, exhibit no severe dividend cuts. This long-term stability not only underscores the financial health and commitment of Edison to its shareholders but also bolsters investor confidence. Consequently, this trend is highly favorable and aligns with the financial objectives of income-focused investors.

Dividends Paid for Over 25 Years?

Assessment of whether the company has a history of consistently paying dividends for an extended period. This is crucial as it indicates financial stability and reliability.

Edison (EIX) has nearly a 25-year record of paying dividends, albeit with some notable gaps. The company did not pay dividends in the early 2000s but resumed with reasonable consistency thereafter. This pattern suggests resilience and a commitment to returning value to shareholders despite some interruptions. Overall, this is a positive trend, but the gaps should be investigated further.

Reliable Stock Repurchases Over the Past 20 Years?

Describe the importance of stock repurchases and why it is crucial for a company like Edison (EIX).

Stock repurchases can signal management's confidence in the underlying business. However, looking at Edison (EIX) from the provided numbers, it appears that they do not have a history of consistently repurchasing their stock over the last 20 years. The data reveals that the company only started holding shares post-2018, indicating their focus might have been elsewhere previously. That said, the absence of reliable buybacks implies there has not been a focus on directly returning capital to shareholders through repurchase programs. This trend is generally unfavorable if one considers stock repurchases as a key indicator of shareholder value enhancement. Nonetheless, it’s crucial to factor in additional expenditures or investments Edison might have made, affecting their ability to allocate funds for buybacks.