Last update on 2024-06-27

Essex Property Trust (ESS) - Dividend Analysis (Final Score: 5/8)

Get a detailed dividend analysis of Essex Property Trust (ESS) with a final score of 5/8. Evaluate the performance, stability, and growth of its dividend policy.

Short Analysis - Dividend Score: 5

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

Essex Property Trust (ESS) has been analyzed using an 8-criteria scoring system to evaluate its dividend policy. ESS has a dividend yield of 3.7267%, slightly above the industry average and relatively stable, particularly during economic downturns. The average annual dividend growth rate stands at 5.63%, but with significant fluctuations, including negative growth years. The payout ratio over the past 20 years is 159.03%, exceeding the ideal 65% threshold, raising sustainability concerns. While the dividends are generally well-covered by earnings, fluctuating free cash flow coverage indicates inconsistency. ESS has paid dividends consistently for over 25 years, growing from $1.95 per share in 1998 to $9.24 in 2023, with only one significant drop in 2015. However, stock repurchase activity over the past 20 years has been sporadic, suggesting inconsistent capital return strategies.

Insights for Value Investors Seeking Stable Income

While Essex Property Trust (ESS) has shown a stable and generally reliable dividend yield slightly above the industry average, several red flags raise concerns. The high payout ratio suggests the company often pays more in dividends than it earns, which is not sustainable long-term. Additionally, inconsistent free cash flow coverage and sporadic stock repurchase activity further highlight potential risks. However, the company's long-term commitment to paying dividends and recent trends in maintaining earnings coverage are positive signs. Investors looking for steady income might find ESS's long-term trend appealing, but they should remain cautious about the sustainability issues raised.

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?

Explain what a dividend yield is and why it matters in a dividend analysis for Essex Property Trust (ESS).

The current dividend yield for Essex Property Trust (ESS) stands at 3.7267%, which is slightly above the industry average of 3.56%. Over the past 20 years, ESS's dividend yield has shown variability, peaking above the industry average multiple times, particularly during economic downturns such as 2008 (5.316%) and 2020 (4.1525%). This trend indicates stability and a generally reliable dividend payout history. In contrast, the industry average has been more volatile, indicating that ESS provides a more stable investment in terms of dividend returns. However, the recent closing stock price trend, which decreased from $352.23 in 2021 to $247.94 in 2023, suggests that while the dividend yield remains competitive, investors should consider the overall financial health and market conditions affecting the stock price. Therefore, this trend is positive for yield-oriented investors but should be explored in conjunction with other financial indicators.

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

The Dividend Growth Rate measures how much the dividend payout has increased on average annually over a particular period. A growth rate higher than 5% indicates that the company's dividends are growing at a strong and sustainable pace.

The dividend per share ratio for ESS fluctuated significantly in the past 20 years, with particularly high values in 2006 (3.7037), 2014 (32.438), and a negative value in 2015 (-10.1404). Despite these fluctuations, the average dividend ratio stands at approximately 5.63%, slightly above the 5% threshold. However, the unstable trend, including years of negative growth, suggests that while the average meets the criteria, the sustainability and reliability of growth may be questionable. Thus, this trend is not strongly favorable overall for long-term stability.

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

Highlight if the 20-years payout ratio of Essex Property Trust (ESS) is below 65% and underscore the importance of the payout ratio in dividend sustainability.

The data shows a consistently high payout ratio, averaging 159.03% over the past 20 years, far exceeding the 65% threshold. This consistent trend indicates that ESS has been paying out more in dividends than it earns, a practice that raises sustainability concerns.

Dividends Well Covered by Earnings?

Earnings coverage ratio measures how well a company's dividend payments are covered by its net income. A ratio above 1 indicates sound coverage, while a ratio below 1 raises sustainability concerns.

When analyzing Essex Property Trust's (ESS) dividends coverage from 2003 to 2023, a predominant trend above a coverage ratio of 1 is observed, signifying that dividends are generally well-covered by earnings. Notable exceptions include 2004, 2005, and 2007, where the ratio dipped below 1, suggesting less stability in those specific years. Despite some fluctuations, the company has maintained a healthy average coverage ratio, particularly in recent years, which bolsters confidence in dividend sustainability and reflects prudent financial management.

Dividends Well Covered by Cash Flow?

Explain why it is important for dividends to be well covered by free cash flow for Essex Property Trust (ESS).

When analyzing dividends, it's crucial to ensure they are well covered by the company's free cash flow. Free cash flow represents the cash a company generates after accounting for cash outflows to support operations and maintain its capital assets. High free cash flow allows a company to pay dividends, reduce debt, and reinvest in its core business. For Essex Property Trust, the range of percentages for the last two decades, fluctuating from -6.21 in 2009 to 0.699 in 2023, emphasizes the volatility and eventual recovery in their ability to cover dividends through free cash flow.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends mean that the company consistently pays out dividends and avoids significant drops in dividend per share. This is crucial for income-seeking investors as it ensures a reliable income source.

The data shows that Essex Property Trust (ESS) had one year where its dividend per share dropped by more than the 20% threshold, specifically in 2015, wherein the dividend per share decreased from $6.41 in 2014 to $5.76, representing a significant decline. This brings about some concerns regarding stability for income-seeking investors. However, aside from this notable drop, the general trend over the past 20 years shows consistent growth in dividends, indicating the company's effort to maintain and increase shareholder value through regular dividend payments. For instance, from 2003 to 2023, the dividend grew from $3.12 to $9.24 per share, which depicts robust overall growth. Despite the one-year dip, the long-term trend appears somewhat positive, but investors should weigh this anomaly carefully.

Dividends Paid for Over 25 Years?

Examining whether dividends have been paid consistently for over 25 years provides insight into a company's stability and commitment to returning value to shareholders.

Essex Property Trust (ESS) has indeed paid dividends consistently over the past 25 years, which is a positive indicator of the company's stability and dedication to shareholder returns. From 1998 to 2023, the dividends per share have grown from $1.95 to $9.24. Notably, the trend shows a consistent increase in dividends over time, with very few stagnant periods. This consistent growth also signifies that the company is probably expanding its operational profitability, which is a reassuring sign for long-term investors. Overall, the trend is excellent for dividend investors looking for reliable income sources.

Reliable Stock Repurchases Over the Past 20 Years?

Examining the stock repurchase history of a company over a significant duration, such as 20 years, is crucial as it reflects management's confidence in the company's intrinsic value, its cash flow generation ability, and its capital allocation strategies. Regular and reliable repurchases can lead to enhanced shareholder value by reducing the number of shares outstanding, which increases earnings per share (EPS) and potentially supports higher stock prices.

Over the last 20 years, Essex Property Trust (ESS) has shown sporadic stock repurchases. The number of shares outstanding increased from approximately 21.67 million in 2003 to about 64.25 million in 2023. Notably, there were decreases in shares during specific years, including 2010, 2013, 2019, 2020, 2021, and 2023. However, the overall trend indicates a significant increase in the number of shares outstanding, meaning that the company has issued more shares than it has repurchased. Consequently, the repurchase activity appears unreliable with an average of 6.1482 reliable repurchased years out of 20. This observation is generally unfavorable for the criterion of reliable stock repurchases as it suggests infrequent commitment to repurchasing its shares, reflecting potential challenges in maintaining a consistent capital return strategy.