Last update on 2024-06-27

Equity Residential (EQR) - Dividend Analysis (Final Score: 4/8)

Comprehensive analysis of Equity Residential (EQR) dividend performance, evaluating stability and payout consistency using an 8-criteria system. Final Score: 4/8.

Short Analysis - Dividend Score: 4

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

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 a financial ratio that shows how much a company pays out in dividends each year relative to its stock price. It is crucial for income-focused investors as it gives them an idea of the return they can expect from dividends alone.

Equity Residential (EQR) currently has a dividend yield of 4.3362%, which is higher than the industry average of 3.56%. Over the past 20 years, the dividend yield for EQR has fluctuated significantly, hitting highs of 19.4406% in 2016 and lows around 2.7% in other years. The sharp peaks and troughs can indicate periods of market stress or exceptional payouts. As of 2023, the current yield suggests a healthy payout compared to the broader industry. This trend is favorable for current and prospective investors who are looking for stable income through dividends. Equity Residential's yield being above the industry average highlights its stronger-than-average dividend-paying capability. Given that EQR has been able to maintain a competitive dividend yield despite market turmoils, it suggests resilience in its financial health and strategy.

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

The dividend growth rate measures how much a company's dividend payouts have increased over time, usually expressed as a percentage. A consistent growth rate above 5% is considered stable and attractive for investors.

Examining Equity Residential's (EQR) dividend per share ratio over the last 20 years shows significant volatility and inconsistency. With values ranging from -83.8875% to 465.8978%, there are extreme peaks and valleys, with some years even having negative growth. Therefore, it is clear that EQR has not achieved a stable dividend growth rate of over 5% for the majority of the past 20 years. This erratic pattern is not favorable for investors seeking reliable and stable dividend income, indicating inconsistency and potential underlying issues within the company's financial or operational strategies.

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

Average payout ratio measures what portion of earnings a company pays out as dividends, with a ratio below 65% being ideal for dividend sustainability.

Equity Residential (EQR) has an average payout ratio of 96.41% over the past 20 years, significantly higher than the ideal threshold of 65%. In this period, the payout ratio has fluctuated, at times surpassing 100%, indicating EQR might be paying out more than its earnings. For instance, in 2009, the payout ratio was as high as 133.40%. High payout ratios can spell trouble for dividend sustainability, as less income is retained for growth and financial stability. Such a trend suggests that EQR's dividend policy might be overly generous, potentially compromising long-term financial health.

Dividends Well Covered by Earnings?

Dividends being well covered by earnings means that the company's earnings per share are sufficient to pay the dividend. This metric is important as it reflects the sustainability of the dividend payments, indicating the financial health and stability of the company.

Looking at the data, Equity Residential (EQR) had some variability in dividends being covered by earnings. For example, in 2003, dividends were almost covered (0.95), whereas in 2005, only 62.82% of the dividend was covered by earnings, signaling potential risk. The significant uptick in 2010 (earnings outstripping dividend, 1.47 times cover) is a positive sign but the wider fluctuations from 2011 (0.55) to 2013 (0.36) indicate inconsistency in earnings strength. The balance improves in 2014 (1.19) and stabilizes with higher coverage ratios by 2023 (1.20). Such trends suggest an overall improved ability of EQR to cover its dividends, despite recurrent periods of weaker coverage, necessitating caution but showing more balanced recent prospects.

Dividends Well Covered by Cash Flow?

Given that EQR is a prominent REIT, its ability to generate free cash flow is critical for sustaining its dividend payouts. This metric showcases whether the company can comfortably cover dividends.

The trend of Equity Residential's (EQR) free cash flow and dividend payout over the years provides an intriguing insight into its financial health and dividend sustainability. For much of the early 2000s, EQR's free cash flow was negative (e.g., -1,961,352,000 in 2005 and -1,540,614,000 in 2006), resulting in very low or even negative coverage ratios (-10.04 in 2003). Such figures indicate an unhealthy financial position where dividends were not covered by cash flow, a red flag for long-term sustainability. Positive improvements became evident from 2011 onwards when the coverage ratio improved significantly, peaking at 5.11 in 2016. This indicates that EQR started generating sufficient free cash flow to comfortably cover dividends. Post-2016, the trend stabilized, maintaining a healthy coverage ratio (~0.67 to 0.82 from 2017 onwards). This stabilization suggests prudent financial management and a strong position to sustain and possibly grow dividends in the future. Overall, the improved trend is a positive signal demonstrating EQR's resilient and strengthened financial positioning, rendering it in a favorable light for dividend-seeking investors.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends refer to the ability of a company to maintain its dividend payouts without significant decreases, which is crucial for income reliability.

Assessing the dividend history of Equity Residential (EQR) over the past 20 years, it is evident that the company has generally maintained stable dividends per share. Throughout most of the period, the payouts show gradual increases or minor fluctuations with a notable spike in 2016. The dividend dropped to its lowest point in 2010 at $1.472, down from $1.932 in 2008, representing a 23.77% decrease. This indicates a period of vulnerability, likely due to the financial crisis. Despite the 2009-2010 dip, dividends did not consistently drop by more 20% over two decades, suggesting overall stability and resilience. As of 2023, the dividend stands at $2.652, representing continued growth. This trend is generally positive, implying reliable income for investors and a commitment to returning value through dividends.

Dividends Paid for Over 25 Years?

Evaluating if a company has consistently paid dividends for over 25 years helps investors gauge its reliability and financial stability.

Equity Residential (EQR) has demonstrated consistent dividend payments for the full 25-year period from 1998 to 2023. Initially, dividends were $1.36 per share in 1998 and have grown mostly steadily to $2.652 in 2023, with the exception of a notable spike in 2016. This trend showcases EQR's commitment to returning value to its shareholders. This long-term track record is generally a positive indicator of the company's sustainability and investor-friendly policies. Despite some fluctuations, the overall upward trend is favorable for investors focused on stable dividend income.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases are indicative of a company strategically utilizing its capital to buy back its own shares to improve shareholder value. This can signal confidence in the company's future prospects and stabilize or increase stock prices.

Over the past 20 years, Equity Residential (EQR) has had several instances of stock repurchases, specifically in the years 2007, 2008, 2010, and 2019. This practice demonstrated the company's efforts to maximize shareholder value during these periods. However, looking at the annual number of shares from 2003 to 2023, the trend shows more instances of share issuance as the total number of shares grew from 297.041 million in 2003 to 378.773 million in 2023. With only four notable years of repurchases and the average annual repurchase ratio being 1.2965, it can be argued that EQR methodically executes share buybacks but less frequently, relative to the issuance. The increasing share count overall isn't entirely favorable as it could mean dilution of value for existing shareholders, hinting at a trend where the company might be funding growth or acquisitions via equity rather than through profits or debt. While the repurchase efforts in specific years underline some positive efforts, the predominant issuance trend over the long term generally pegs this criterion as less favorable.