Last update on 2024-06-27

Global Payments (GPN) - Dividend Analysis (Final Score: 5/8)

Global Payments (GPN) - dividend analysis scores 5/8. Assessing stability and performance using an 8-criteria system. Capital appreciation compensates low yield.

Short Analysis - Dividend Score: 5

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

Global Payments (GPN) had mixed results based on the 8 criteria used to evaluate its dividend policy. Overall, GPN scored 5 out of 8. Here's a brief overview: 1. **Dividend Yield**: With a current yield of 0.7874%, GPN's yield is below the industry average of 1.67%. However, the stock price saw substantial growth, which might offset the low yield for some investors. 2. **Dividend Growth Rate**: The data shows volatile payouts, which makes the growth rate unreliable. This suggests instability in GPN's dividend policy. 3. **Payout Ratio**: GPN has an average payout ratio of 20.60%, generally a good sign as it retains more earnings for growth, but the anomaly in 2022 with 246.85% is concerning. 4. **Dividend Coverage by Earnings**: This varied significantly, indicating potential risks for dividend sustainability. 5. **Dividend Coverage by Cash Flow**: Historical inadequacy in covering dividends, although recent improvements show better sustainability. 6. **Stable Dividends**: There were erratic changes, but significant recovery and growth since 2019 are worth noting. 7. **25-Year Track Record**: GPN does not meet this but has shown a robust increase in recent years. 8. **Stock Repurchases**: A varied record but a positive trend indicates undervaluation perception by management.

Insights for Value Investors Seeking Stable Income

Considering the analysis, Global Payments (GPN) might be worth a look for investors interested in a mix of dividend income and potential capital appreciation. The low payout ratio suggests room for growth, but volatility in dividends and insufficient coverage by cash flow historically raise some concerns. GPN's recent focus on increasing dividends and stock repurchases is a positive trend, but for income-focused investors, the lack of a 25-year track record and previous stability issues may require caution. Overall, it may be a decent pick for those willing to take on some risk for the potential of growth and capital gains.

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 relative to its stock price.

Global Payments (GPN) has a current dividend yield of 0.7874%, which is lower than the industry average of 1.67%. Over the last 20 years, Global Payments' dividend yield has fluctuated, with notable increases in recent years reaching up to 1.0068% in 2022. Despite this, GPN's dividend yield remains below the industry average, which isn't necessarily favorable for dividend-focused investors. However, it is worth mentioning that GPN saw significant growth in stock price from $11.78 in 2003 to $127 in 2023. This capital appreciation might compensate for the lower-than-average dividend yield.

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

Examine whether the Dividend Growth Rate exceeds 5% over the past 20 years and clarify the importance of this criterion.

The data for the Dividend Ratio over the last 20 years shows significant variability and non-consistent payout patterns. Notable spikes and declines in dividend payments - such as the dramatic fluctuation in the 2015 to 2017 period and exploration in growth in 2019 suggest volatility in Global Payments’ dividend distribution strategy. This renders the dividend growth rate assessment unreliable. The irregularity here indicates a highly unstable dividend policy, quite opposite to reliable high growth. With average ratio around 35% might not be considered consistent.

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

A payout ratio lower than 65% indicates that the company retains a significant portion of its earnings to reinvest in the business, thus suggesting sustainability of the dividend.

Global Payments (GPN) has an average payout ratio of 20.60% over the past 20 years. This ratio is significantly below the 65% threshold, indicating that the company tends to retain a large portion of its earnings for reinvestment rather than distributing it all as dividends. Such a trend is generally positive as it suggests the company prioritizes growth and ensures the sustainability and potential for increasing future dividends. However, the exceptionally high payout ratio of 246.85% in 2022 could be a red flag, although it might be an anomaly rather than a persistent trend. Other than that anomaly, the consistent low payout ratios indicate a healthy dividend policy.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings, which means the company generates enough profit to comfortably pay dividends without compromising its financial stability. This is crucial for assessing the sustainability of a company's dividend policy.

The trend in the Dividends Covered by Earnings shows a significant variance over the years. For instance, in 2003, Global Payments had a comfortable coverage ratio of approximately 0.113. Over subsequent years, except for 2009, 2019, and 2022, the ratio remained quite low, often below 0.05. This indicates periods where earnings just marginally covered dividends, raising concerns about the sustainability of the dividends paid. However, the sharp spike in 2020 to 2.468 suggests an improvement in earnings relative to dividends. Despite this, the overall trend exhibits inconsistency, suggesting a potential risk for dividend sustainability in some years.

Dividends Well Covered by Cash Flow?

Refers to whether a company's dividend payments are sufficiently covered by its free cash flow, which indicates the sustainability of these payments.

Global Payments (GPN) has shown varied coverage of its dividend payouts by free cash flow over the years. The ideal ratio should be comfortably over 1.0, indicating that dividends are well-covered by free cash flow. From 2003 to 2023, GPN's ratio was mostly below 1.0, often significantly so. However, in recent years, we see improvement, such as 0.168 in 2022 and 0.163 in 2023, along with some years where free cash flow coverage increased notably compared to prior periods. This shows better sustainability in recent years but overall historical inadequacy in covering dividends with free cash flow.

Stable Dividends Since the Company Began Paying Dividends?

Stable, consistent dividend payments over a long period, specifically 20 years, reflect a company's legacy of reliability and foresight. For income-focused investors, such stability means predictable revenue streams, making the investment less risky and more appealing.

Upon careful examination of the dividend per share data for Global Payments (GPN) over the past 20 years, there have been several erratic changes. Notably, the dividend payment dropped from $0.043 in 2017 to $0.04 in 2018, signifying a decline greater than 20%. However, a positive trend can be observed starting from 2019 when dividends rose significantly from $0.225 to $1 in 2023. Despite the drop in 2017, the trend post-2018 has shown good recovery with substantial increases. Hence, while income-seeking investors might raise concerns about the abrupt drop in 2017, the substantial growth in dividends in subsequent years provides a reassuring outlook for the company's dividend stability in the future.

Dividends Paid for Over 25 Years?

Analyzing if a company has consistently paid dividends for over 25 years helps in understanding its commitment to shareholder returns and financial stability.

Global Payments (GPN) has a mixed history when it comes to dividends. The company has paid dividends from 2001, with a nominal amount of $0.03 per share, gradually increasing but remaining modest until 2015. Significant increases were only observed from 2019 onwards, where dividends per share sharply rose to $0.225, peaking at $1 per share in 2023. While this recent trend of increasing dividends is positive, GPN does not meet the criterion of paying dividends for over 25 years consistently. Its earlier period of intermittent and modest dividends raises questions about its long-term commitment to shareholder returns. However, the steep increase in recent years could indicate a new strategic focus on returning value to shareholders. This is a good trend, but further consistency is required to fully meet this criterion.

Reliable Stock Repurchases Over the Past 20 Years?

Stock repurchases involve companies buying back their own shares from the market. This can be indicative of the company believing that its shares are undervalued.

Global Payments Inc. (GPN) shows a varied record of stock repurchases over the past 20 years. The number of shares outstanding decreased in several years like 2007, 2008, and from 2011 to 2016, as well as in 2021, 2022, and 2023. For instance, the company reduced its outstanding shares from approximately 163.4 million in 2006 to around 134.9 million in 2015, followed by further subsequent buybacks in 2016 and the early 2020s. An average repurchase rate of 3.47% is quite substantial. This trend is generally positive as it could suggest the company's management perceives its stock as undervalued and a good investment for its cash reserves. However, the significance of such buybacks should also be evaluated in conjunction with other factors such as profitability, cash flow, and overall financial health.