Last update on 2024-06-27

ESCO Technologies (ESE) - Dividend Analysis (Final Score: 4/8)

Analyze the performance and stability of ESCO Technologies (ESE) dividend policy with an 8-criteria scoring system. Final Dividend Score: 4/8.

Short Analysis - Dividend Score: 4

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

ESCO Technologies (ESE) was evaluated on eight criteria to assess its dividend policy. ESE scored 4 out of 8 points. While the company's dividend yield (0.2051%) is not competitive compared to the industry average (0.75%), dividends have shown an annual growth rate higher than 5% over the last 20 years. However, the average annual payout ratio (104.56%) is much higher than the desired 65%, suggesting potential financial instability. Dividends have generally been well covered by earnings and cash flow, with the exception of a few years. Although ESE has only paid dividends since 2009 and not for over 25 years, its dividend record has been stable post-2009. Stock repurchases occurred intermittently over the last two decades.

Insights for Value Investors Seeking Stable Income

The mixed analysis indicates that ESE may not be an ideal choice for income-focused investors due to its lower dividend yield and high payout ratio concerns. However, those interested in potential growth and cash flow coverage might find it worth investigating further. Consider looking into the company's overall financial health and future dividend policies before making an investment decision.

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 by a company as a percentage of its stock price. It indicates the return on investment from dividends alone.

The dividend yield for ESCO Technologies (ESE) in 2023 stands at 0.2051%, which is significantly lower than the industry average of 0.75%. This suggests that ESE's dividend returns are less attractive compared to its industry peers. Over the last 20 years, ESE's dividend yield has seen fluctuations, peaking at 1.1675% in 2013 and generally trending downwards since. The company’s stock price has increased significantly, closing at $117.03 in 2023, which partly explains the lower yield. Despite consistent dividend payments, their yield has not matched the industry average in recent years. This could indicate that ESE is focusing on other avenues for shareholder returns or business growth rather than high dividend payouts, which might not appeal to income-focused investors.

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

The Dividend Growth Rate is higher than 5% in the last 20 years and why it is important to consider

Based on the provided dividend per share ratio data spanning 2003 to 2023, we can calculate the historical growth rate. The periods of dividend increases, decreases, and no payouts present a complex scenario. Over the last 20 years, the company had sporadic dividend payouts with notable increases in some years (e.g., 2008 had a growth of 200%) and decreases in others (e.g., 2023 had a decrease of -25%). Although there are significant fluctuations, we need to focus on the overall average. The average dividend ratio being approximately 11.19% suggests a positive trend exceeding 5%. This indicates progressive increases in the dividend payment at an average annual growth rate but attention should be given to periods of negative growth. Given the average value, this trend is considered good, but analysts and investors need to also consider the impact and frequency of decreases in dividend payouts to fully understand the sustainability of this growth.

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

Examining the Average Payout Ratio over a long period like 20 years helps investors understand how consistently a company can distribute dividends relative to its net income.

The historical data for ESCO Technologies (ESE) reveal that its Average Payout Ratio over the past 20 years stands at a staggering 104.56%. This figure is significantly higher than the desired threshold of 65%. This trend is alarming, indicating that ESCO Technologies has struggled to maintain a sustainable dividend distribution. The volatility is evident from the negative and extremely high values observed in 2013 and 2014, respectively. An ideal dividend payout ratio is generally below 65%, ensuring the company retains enough earnings for growth while rewarding shareholders. Hence, the findings imply potential financial instability or extraordinary circumstances impacting the data. Prioritizing stability here would necessitate more controlled and consistent payouts.

Dividends Well Covered by Earnings?

Dividends being well covered by earnings means that a company can sustain its dividend payouts from its net income rather than relying on external sources or taking on debt. It indicates financial stability.

Between 2003 and 2008, ESCO Technologies paid no dividends, which meant their earnings were entirely retained for reinvestment or debt repayment. Starting from 2009, dividend payouts appear modest compared to earnings. Payout ratios (dividends per share divided by earnings per share) were generally low. For example, in 2010, the coverage ratio was 0.143, and in 2022 it was 0.100, indicating that less than 20% of earnings were paid out as dividends, leaving plenty of room for covering dividends. Some years like 2013 displayed abnormally high ratios due to negative earnings or dividends surpassing earnings like it happened in 2014. The overall trend shows that dividends are comfortably covered by earnings, reflecting well on ESCO's financial prudence. This is positive, suggesting they have the ability to sustain and even possibly grow dividends in the future without straining their finances.

Dividends Well Covered by Cash Flow?

Ensuring that dividends are well covered by cash flow is crucial because it indicates that the company generates enough cash to support its dividend payments, reducing the risk of dividend cuts.

ESCO Technologies (ESE) has exhibited variable free cash flow figures over the years. In 2007, the company experienced a negative free cash flow of approximately -$4.3 million, an alarming point. However, from 2008 onward, it managed to stabilize its free cash flow between approximately $22 million and $90 million. By comparing this to the dividend payout amount, which has remained relatively steady around $8.2 million per year since 2010, it becomes evident that the company's dividends were well covered. The dividend coverage ratio oscillated between 0.09 and 0.38, indicating varying levels of dividend safety. Notably, dividends were well above the absolute benchmark of a 0.1 coverage ratio in nearly all years. Given that dividends are consistently well covered by cash flow, this trend is certainly positive. A higher dividend coverage ratio would be more reassuring, but ESE's ability to sustain its payments even during fluctuating free cash flow periods demonstrates good fiscal management.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends over the past 20 years give income-seeking investors confidence in the company's financial health and sustainability. This criterion checks if the dividend per share did not drop by more than 20% over this period.

Reviewing ESCO Technologies' dividend payment history over the last 20 years, the company did not pay any dividends until 2009. From 2009 onwards, their dividends per share showed variability but did not decrease by more than 20% in any year. This stability, despite occasional decreases, can still be considered somewhat reliable and may be seen as a good trend for income-seeking investors. However, the fact that ESCO Technologies did not pay any dividends for a significant portion of this period may be of concern for some investors. The lack of significant drops in the dividend payments post-2009 implies responsible financial management.

Dividends Paid for Over 25 Years?

Checking if a company has paid dividends consistently for over 25 years helps assess its financial stability and shareholder-friendly policies.

From the data provided, ESCO Technologies (ESE) began paying dividends in 2009. Thus, the company has not yet paid dividends for over 25 years. This may be seen as a negative aspect for investors looking for long-term, consistent dividend payers. That said, ESE has shown a trend of paying dividends consistently since 2009, indicating financial strength since that year. For a better assessment, investors might want to examine the company's overall financial health and future dividend policies beyond this 14-year history.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases over an extended period indicate that a company consistently returns value to its shareholders by reducing the number of outstanding shares, thereby increasing each shareholder's ownership stake and potentially boosting earnings per share.

Over the past 20 years, ESCO Technologies (ESE) exhibits intermittent stock repurchase behavior. From the data, significant reductions in shares occurred during the years 2005, 2008, 2013, 2014, 2015, 2016, 2019, 2022, and 2023. The average annual repurchase rate is approximately -0.0874, indicating a slight reduction in total shares over these two decades. This trend is moderately positive for shareholders, as regular share repurchases can signify confidence in the company's financial health and stability. However, the inconsistency, with only 9 out of 21 years showing noticeable buybacks, suggests a more cautious and sporadic approach to share repurchase programs. The less frequent buybacks might point towards opportunistic purchases rather than a systematic repurchase plan. Overall, while there is evidence of buybacks adding value to shareholders, the inconsistency means that shareholders cannot always rely on repurchases as a steady aspect of their investment returns in ESE.