Last update on 2024-06-27

Forward Air (FWRD) - Dividend Analysis (Final Score: 5/8)

Forward Air's (FWRD) dividend analysis: Performance evaluated against 8 criteria. Final score: 5/8. Stable but fluctuating yields and growth.

Short Analysis - Dividend Score: 5

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

The analysis of Forward Air (FWRD) dividend policy against 8 criteria reveals a mixed performance. The company has a low dividend yield of 0.7635% compared to the industry average of 2.27%, indicating lower returns from dividends. The average annual dividend growth rate of 5.237% barely exceeds the 5% benchmark but is highly inconsistent with periods of zero or negative growth. Despite occasional spikes, the average payout ratio of 25.407% over the last 20 years shows financial prudence. However, the coverage of dividends by earnings and cash flow is inconsistent, especially with a troubling zero EPS in 2023. The dividend per share dropped significantly by 50% in 2023, and the company has not been consistently paying dividends for over 25 years. Nonetheless, Forward Air has a strong record of share buybacks, reducing the total number of shares consistently.

Insights for Value Investors Seeking Stable Income

Given Forward Air’s mixed performance, with strengths in payout ratio and stock repurchases but weaknesses in dividend yield, stability, and coverage by earnings, it may not be the best option for dividend-focused investors seeking consistent income. Investors prioritizing capital appreciation over dividend income might still find value in the company's robust share repurchases and prudent payout ratios. Overall, it's essential to approach with caution and consider other stocks if the primary investment goal is consistent and stable dividend income.

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 and why it is important to consider

The dividend yield represents the ratio of a company's annual dividend compared to its share price. This ratio helps investors understand the return they might receive solely from dividends. When a company's dividend yield is significantly lower than the industry average, it may suggest that the company either has lower dividend payments or a higher share price compared to peers. Forward Air's (FWRD) current dividend yield of 0.7635% is considerably below the industry average of 2.27%. Historically, Forward Air's dividend yield has fluctuated, peaking around 1.15% in 2008 and again in 2018. Despite this, the company's current yield shows a downward trend since 2020, indicating potential investor concerns regarding their dividends or an appreciating stock price. For example, since 2020, the stock price has increased from $76.84 to $121.09 in 2021, before dropping to $104.89 in 2022, and currently sits at $62.87 in 2023. Meanwhile, the dividend per share, while generally consistently increasing, has recently decreased from $0.96 in 2022 to $0.48 in 2023. The decline in dividend yield – despite the stock price fluctuations – suggests that the company's dividend payments might not be keeping pace with the share price changes, an aspect that can be concerning for dividend-focused investors. Forward Air might be focusing more on reinvestment or operational growth rather than returning capital to shareholders through dividends. Therefore, this trend is generally negative from a dividend yield perspective, particularly for income investors.

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 payout over a certain period of time. It is important to consider.

Over the last 20 years, Forward Air's (FWRD) dividend payout has been highly inconsistent. While there have been years with significant increases, such as 2006 (27.2727%), 2010 (21.4286%), and recent years showing smaller yet consistent growth, the fluctuating nature, including periods of zero payouts and a notably negative growth (-50% in 2023), reveals a volatility that might concern potential investors. With an average dividend growth rate of 5.237% barely exceeding the 5% benchmark, potential investors might view this trend with caution due to its inconsistency.

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

The criterion examines whether Forward Air's average payout ratio has consistently stayed below 65% over the past 20 years. This metric is important as it indicates the company's ability to sustain its dividend payments without jeopardizing its financial stability. A lower payout ratio often suggests financial prudence and room for future dividend increases.

The payout ratio data for Forward Air from 2003 to 2023 reveals fluctuations, with values ranging from 0% to a high of 87.321% in 2020. Despite occasional spikes, the company's average payout ratio over this period stands at 25.4071%, well below the 65% threshold. This is a favorable trend, implying that Forward Air has managed to maintain a healthy balance between distributing profits to shareholders and retaining sufficient earnings for growth and operations. Specifically, the high payout ratios in 2009 (82.8157%) and 2020 (87.321%) appear to be anomalies, potentially caused by exceptional circumstances in those years. Apart from these outliers, the majority of the years exhibit a disciplined payout policy. This trend is indicative of financial prudence and bodes well for the sustainability of dividend payments.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings. This means that the company's earnings per share (EPS) should be significantly higher than its dividend per share (DPS). A good coverage ratio typically provides assurance that the company can sustain its dividend payments, even during periods of lower profitability. It is an indicator of financial stability and prudent earnings management.

Forward Air’s EPS and DPS data reveal some interesting trends. In the early years (2003-2009), the company maintained a dividend payout despite having a lower EPS, especially in 2009 when the ratio peaked at 82.82%. Post-2010, an improvement is visible in the EPS, which gives a more comfortable margin over DPS. Notably, in 2016, the EPS witnessed a dip to 0.9 from 1.78, cutting the coverage ratio substantially to 56.67%, but swiftly recovering to 2.89 in 2017. Recent years (2021 and 2022) show a robust EPS of 3.8983 and 7.2132 respectively, indicating ample coverage over DPS of 0.84 and 0.96. However, the trend breaks in 2023, with EPS reported at zero, well below the DPS of 0.48, challenging the dividend sustainability. This inconsistency could be concerning for investors depending on dividends for their income, marking a negative trend.

Dividends Well Covered by Cash Flow?

Examining whether dividends are well covered by cash flow involves comparing free cash flow to the total dividend payout amount. This is critical as it indicates the company's ability to maintain or grow its dividend payments without relying on external financing.

The cash flow coverage of dividends ranged from 0% to approximately 54% between 2003 and 2023 for Forward Air (FWRD). The best coverage ratio was in 2007 at 54%, indicating during that year, the free cash flow generated was more than enough to cover the dividend payout. Nonetheless, other years show lower coverage ratios, with alarming lows of around 16% in recent years like 2022 and 2023. This suggests that the company's dividends are often not well-covered by its free cash flow, potentially leading to sustainability concerns. While an ideal coverage ratio is greater than 1 (or 100%), consistently low percentages could indicate a risk of dividend cuts or the need for additional financing to maintain current payout levels. Despite an uptick in coverage to 32.4% in 2016, the trend is not stable and portrays a business that may struggle to sustain dividend payments solely through its operating cash flows.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends over 20 years mean that the dividend per share didn't drop more than 20% during this period.

Examining the dividend per share data for Forward Air (FWRD) from 2003 to 2023, we see that there were significant increases over the years except for the year 2023, where the dividend per share dropped to 0.48 from 0.96 in 2022, marking a 50% drop, slightly above our threshold of 20%. While this indicates overall growth, the drop in 2023 could be a red flag for income-seeking investors concerned about sustainability. Thus, despite a generally positive trend, the 2023 drop negatively affects its stability score.

Dividends Paid for Over 25 Years?

Exploring whether a company has paid dividends consistently over a significant period, such as 25 years, reveals its long-term financial health, stability, and commitment to returning value to shareholders.

Examining the provided data, it is evident that Forward Air (FWRD) has not consistently paid dividends over the past 25 years. Starting from 1998 with a notable $1.6111 per share, the company did not pay any dividends for a significant period from 1999 to 2004. It resumed paying dividends modestly in 2005. Consistent dividends began emerging significantly around 2012, with steady increases observed annually up to 2021, culminating at $0.96 per share, before a notable cut to $0.48 in 2023. This inconsistency reflects poorly on the criterion of having paid dividends for over 25 years. Such erratic behavior may imply underlying financial instability or changing dividend policies, both raising concerns about Forward Air’s long-term commitment to rewarding its shareholders. However, the upward trend in recent years before 2023 was positive, suggesting renewed focus on dividend payments.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases indicate a company's commitment to returning value to shareholders, often boosting share prices.

Upon reviewing Forward Air (FWRD)'s share repurchase data over the past 20 years, it is clear the company has engaged in stock buybacks consistently over 12 of these years. For instance, the number of shares decreased from 32.5 million in 2003 to approximately 26.78 million in 2022. Notably stable repurchase initiatives occurred in years like 2008, 2009, 2018, 2020, and 2021, among others. This average reduction of -5.9473 per cent underlines Forward Air's strategy to enhance shareholder value by making its remaining shares more valuable and potentially more attractive to investors. This trend is favourable and showcases the company's robust capital allocation strategy.