Last update on 2024-06-28

Fortune Brands Home & Security (FBHS) - Dividend Analysis (Final Score: 5/8)

Comprehensive dividend analysis of Fortune Brands Home & Security (FBHS) with an 8-criteria scoring system. Final score: 5/8, showing steady and promising growth.

Short Analysis - Dividend Score: 5

We're running Fortune Brands Home & Security (FBHS) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

Fortune Brands Home & Security (FBHS) was analyzed using an 8-criteria scoring system to gauge the firm's dividend policy performance and stability. Key observations include: The dividend yield of 1.9611% is growing but below the industry average of 2.5%. The average dividend growth rate is 11.29%, inconsistent over the years. FBHS's average payout ratio of 17.61% is sustainable. Some years show dividends are not adequately covered by earnings. Similarly, Free Cash Flow coverage was volatile, even dropping to zero in 2022. Despite this, dividends have grown steadily since 2013, showing no drastic cuts. FBHS has paid dividends for only 10 years, not meeting the 25-year criterion. Lastly, FBHS has executed reliable stock repurchases, reducing shares from 155M in 2008 to around 135.8M in 2022.

Insights for Value Investors Seeking Stable Income

FBHS presents a mixed bag as an investment opportunity from a dividend perspective. While it has shown reliable stock repurchases and stable dividend growth since 2013, its current yield is below the industry average, and its FCF coverage has been inconsistent. It may be worth considering for investors looking for growth potential and stable but short-term dividend history. However, those seeking long-term dividend consistency might look elsewhere. Carefully consider your investment goals before making a 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 is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price. It is important as it reflects the return on investment for shareholders just from dividend payments, providing insights into the income generated from holding a stock.

The current dividend yield of Fortune Brands Home & Security (FBHS) stands at 1.9611%, which is significantly lower than the industry average of 2.5%. Over the past 20 years, FBHS's dividend yield has only been reported since 2013 where it started at 0.6565%. This yield showed considerable growth until 2022. The industry average, meanwhile, shows more fluctuation but remains generally stable between 1% and 2%, recently spiking to 2.5% in 2022. Given FBHS's dividend yield history, the recent spike to 1.9611% reflects positive revenue and payout growth, though it still lags behind the industry average. Despite this, the substantial growth from its dividend inception indicates robust forward momentum. Hence, while FBHS's yield is below the industry average, the upward trend suggests positive future potential.

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

The Dividend Growth Rate reflects the annualized percentage rate of growth of a company's dividend over a specific period. It is important because it indicates the company's ability to generate increasing returns to shareholders over time.

The Dividend Growth Rate for Fortune Brands Home & Security (FBHS) does meet the specified criterion in some years but not consistently. The years with significant changes include 2014 with a 60% increase and 2016 with a 71.4286% increase, both of which notably surpassed the 5% threshold. However, there are years such as 2011, 2010, 2009, and earlier when the growth was non-existent (0%). Additionally, in 2017 there was a drastic drop of -25%. The average Dividend Growth Rate over the last 15 years stands at approximately 11.29%, which is influenced heavily by years with high growth rates. This shows an inconsistency in dividend growth, fluctuating notably, and while certain years exceed expectations, others fall way short or remain stagnant. Therefore, it does indicate a certain level of growth but not consistent and reliable enough over the last 15 years to meet steady growth criteria robustly.

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

Average Payout Ratio for Fortune Brands Home & Security (FBHS) represents the portion of earnings paid out as dividends. A lower payout ratio (typically below 65%) is favorable, indicating sustainable dividends without jeopardizing growth.

For Fortuna Brands Home & Security (FBHS), the payout ratio data provided spans the years 2008 to 2022 with an average payout ratio of 17.60624%. The low average payout ratio, significantly below the 65% threshold, suggests a conservative dividend policy and ample room for the company to reinvest in its growth. This is favorable as it indicates sustainability and potential for future dividend increases without stressing the company's finances. For instance, the peak payout ratio in the observed period (2014) was 50.4891%, which is still within safe limits but demonstrates the company's more generous dividend policy in certain years. The absence of a payout in the listed years underscores caution, reflecting periods where dividends might have been withheld to support financial or operational flexibility.

Dividends Well Covered by Earnings?

Earning per share (EPS) should sufficiently cover the dividend per share to ensure the company is not paying more dividends than its earnings can support.

Examining Fortune Brands Home & Security's (FBHS) data reveals mixed results regarding this criterion. The most supportive dividend year was 2014, showing a coverage ratio of 0.5048, meaning the EPS was capable of covering half of the dividend payout. However, the current numbers suggest a negative or zero trend which might indicate an unsustainable dividend policy. The steady decline in coverage to 0.0 in 2022 is concerning, especially since a lack of earnings to cover dividends typically signifies potential future cuts in dividends. This negative trend is a poor sign for long-term sustainability.

Dividends Well Covered by Cash Flow?

Interpret the significance of Free Cash Flow (FCF) for analyzing Dividend Coverage ratios and why it is a crucial factor for evaluating a company's dividend stability.

Free Cash Flow (FCF) represents the cash a company generates after accounting for capital expenditures needed to maintain or expand its asset base. It is essential for evaluating dividend coverage because it shows the actual cash available for dividend payments. A healthy FCF indicates that the company has sufficient cash to cover its dividends, ensuring its financial stability. For Fortune Brands Home & Security (FBHS), volatile FCF figures over the years, including a drop to zero in 2022, raise concerns about its ability to maintain stable dividend payouts consistently.

Stable Dividends Since the Company Began Paying Dividends?

Assessing the stability of dividend payments over the past 20 years helps determine the reliability of a company's dividend income as a consistent source of yield for investors.

The dividend per share for Fortune Brands Home & Security (FBHS) reported a steady growth pattern from 2013 onwards, indicating progressive performance. Dividends began at $0 in 2008-2012 when data became available, progressively increasing to $1.12 in 2022. Critically, there appears to be no year where a drop of 20% or more occurred, affirming an overall stable growth trend per the stipulated criteria. This trend is highly favorable for dividend-seeking investors, showcasing FBHS's consistent ability to deliver and grow dividends over time, providing a predictable return on investment.

Dividends Paid for Over 25 Years?

This criterion examines if a company has a consistent track record of dividend payments over the past 25 years. A strong dividend history can indicate financial stability and shareholder value.

The dataset shows that Fortune Brands Home & Security (FBHS) began paying dividends in 2013 with a dividend per share of $0.30. The company steadily increased its dividends each year, reaching $1.12 per share in 2022. While the firm shows a strong trend in increasing dividends over the past decade, this 10-year history does not meet the 25-year criterion. Although recent dividend growth is promising, potential investors looking for a company with a longer dividend-paying record might need to consider this factor.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases over an extended period indicate a company's commitment to returning value to its shareholders. It is essential to evaluate the consistency and impact of these repurchases.

Over the past 20 years, Fortune Brands Home & Security (FBHS) has demonstrated reliable stock repurchases, especially in the more recent decade. The data indicates that from 2014 onwards, the company has consistently reduced its number of shares year over year. Starting from 155 million shares in 2008, the number has gradually decreased to approximately 135.8 million shares by 2022. This consistent reduction in shares can significantly enhance earnings per share (EPS) and often reflects a strong financial position and management's confidence in the company's future. An average repurchase rate of -0.8929 over 20 years is an indication of a solid strategy towards returning value to shareholders, giving a positive signal to potential investors. Therefore, this trend is predominantly positive for FBHS and its shareholders as it points towards a persistent effort to optimize capital structure and shareholder value.