Last update on 2024-06-27

FedEx (FDX) - Dividend Analysis (Final Score: 6/8)

Analyze FedEx's (FDX) dividend performance and stability with an 8-criteria scoring system. Final score: 6/8 points.

Short Analysis - Dividend Score: 6

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

FedEx's dividend policy was assessed using an 8-criteria scoring system and achieved a dividend score of 6/8. The company has shown significant improvement in dividends over the past 20 years, despite a few inconsistencies. Its dividend yield (1.9488%) is slightly below the industry average (2.27%), which might be due to stock price appreciation. The average annual dividend growth rate is about 18.91%, surpassing the 5% benchmark despite some volatility. The average payout ratio of 29.46% is favorable and indicates a balance between dividend payouts and retaining earnings. Earnings and cash flow generally cover dividends well, though there were a few years of concern. FedEx has shown stability in its dividends since it started paying them, with growth from $0.21 in 2003 to $4.93 in 2023. Although it hasn’t paid dividends for 25 years, the trend is positive. Additionally, reliable stock repurchases have been observed over the last 20 years, with significant reductions in outstanding shares, which indicates strong financial health. Overall, FedEx exhibits a stable and growing dividend policy with a few areas for improvement.

Insights for Value Investors Seeking Stable Income

FedEx's dividend policy seems strong and shows potential for growth, despite some periods of volatility. Its ability to balance between payouts and retained earnings, alongside a solid history of stock repurchases, showcases financial health and commitment to shareholder value. However, potential investors should be cautious of past inconsistencies and continue monitoring the financial strategies. FedEx is worth considering for investment, especially if these trends of stability and growth continue.

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 important because it shows investors how much they will earn annually for investing in the stock. A higher yield is typically more attractive.

FedEx's dividend yield of 1.9488% for 2023 marginally decreases the previous high of 2.4249% for 2022 but remains significantly high compared to previous years. However, it is below the industry average of 2.27%. This suggests that while FedEx's dividends have grown substantially over two decades, its relative yield may not be as compelling compared to its peers. This could be partly attributed to FedEx's stock price appreciation, as dividends per share increased steadily from $0.21 in 2003 to $4.93 in 2023, leading to substantial shareholder returns. The trend is positive due to the consistent growth in dividends, considering the long-term view.

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

The Dividend Growth Rate shows how much the dividend paid by a company increases every year. A growth rate higher than inflation is key for providing real returns.

FedEx's Dividend Growth Rate has fluctuating percentages over the last 20 years, with some years showing high growth and others showing decline. The average dividend growth rate is around 18.91%, which is well above the 5% benchmark. However, this includes some zeros, suggesting possible cuts or suspensions in dividends during certain times, which could be a response to financial pressures. The overall trend appears good, indicating significant growth, but with periods of inconsistency.

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

Average Payout Ratio measures the proportion of earnings paid as dividends to shareholders. A ratio lower than 65% suggests financial stability and capacity to sustain dividends.

FedEx's average payout ratio over the last 20 years is 29.46%, which is significantly below the 65% threshold. This indicates a healthy balance between paying dividends and retaining earnings for growth and operational needs. While there's a notable spike in 2009 (140.08%) and a high in 2019 (126.15%), these are outliers in an otherwise stable trend. Consistently low payout ratios suggest that FedEx has a stable ability to sustain and possibly even grow its dividends. This trend is generally positive for both the company’s financial health and shareholders.

Dividends Well Covered by Earnings?

Dividends being well covered by earnings signifies the company's ability to sustain its dividend payments. The benchmark to assess this coverage is the Dividend Payout Ratio (DPR). Lower ratios typically indicate healthier coverage.

Examining FedEx's data from 2003 to 2023 reveals significant fluctuations in the DPR, swinging from a low 0.060 in 2006 to a high 1.40 in 2009. The steady earnings recovery post-2009, reflected in 2022-2023 ratios around 0.315, indicates improved coverage. Overall, recent trends suggest a strengthening position.

Dividends Well Covered by Cash Flow?

Dividends being well-covered by cash flow means that a company generates sufficient free cash flow to comfortably pay its dividends. It indicates financial stability and the ability to sustain dividend payouts without resorting to external borrowing.

Analyzing FedEx's free cash flow and dividend payout amount from 2003 to 2023, the ratio of free cash flow to dividend payout varies significantly. Notably, in 2015, 2016, and 2017, the free cash flow was zero, which is concerning as it indicates there may be issues maintaining dividend payouts. Moreover, in 2018 and 2020, the free cash flow was negative, showing more cash outflow than inflow, pointing to potential financial strain. However, the free cash flow surpassed the dividend amount by a substantial margin in 2019, and 2021, indicating strong coverage. In 2023, the coverage stands at 0.44, illustrating a reasonable level of sustainability. Overall, there are fluctuations, but the trend appears to be stabilizing in recent years, which is a positive sign.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments is a cornerstone for income-seeking investors. A stable and predictable dividend stream can significantly bolster investor confidence, providing a reliable income regardless of market conditions. It indicates the company's solid financial performance and its commitment to returning value to shareholders. Therefore, analyzing trends over the last 20 years can offer a clearer picture of dividend consistency.

The dividend per share for FedEx (FDX) has exhibited stability and growth from 2003 through 2023, increasing from $0.21 to $4.93. This growth trajectory, however, was not without its volatility; the dividend decreased by more than 20% in a particular year. This substantial drop highlights a period of financial stress or liquidity constraints for the firm. Despite this one-off decrease, the majority of the period under review shows a consistent uptrend, which is positive. Investors must weigh this occasional volatility against its long-term dividend growth potential.

Dividends Paid for Over 25 Years?

Dividends Paid for Over 25 Years considers the consistency and reliability of a company's dividend payments over a long period, indicating financial stability and shareholder confidence.

FedEx has paid a dividend consistently from 2002, starting at $0.15 per share and increasing to $4.93 per share by 2023. Although this does not cover a period of 25 years, the trend shows a steady and robust growth in dividend payouts. This trend is a positive indicator of the company's financial health and its commitment to returning value to shareholders. The significant increase in dividends from 2002 to 2023, particularly the jump in the past five years, reinforces the confidence in FedEx’s operational and financial stability. Despite not meeting the 25-year criterion, the overall trend is very encouraging.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases underscore a company's commitment to returning value to shareholders by reducing the number of outstanding shares. This can lead to higher earnings per share and often signals strong financial health.

FedEx (FDX) demonstrates a pattern of stock repurchases with consistent reductions seen in certain years, notably 2014, 2015, 2016, 2017, 2019, 2020, 2022, and 2023. A noticeable average reduction of nearly 0.85% per year over the past two decades indicates a long-term strategic trend towards share buybacks. The number of shares has been reduced from 302,919,708 in 2003 to 254,000,000 in 2023. This trend is favorable as it implies growing shareholder value, reflecting financial robustness as repurchases typically occur when the company has surplus cash and optimism about future prospects.