Last update on 2024-06-27

Garmin (GRMN) - Dividend Analysis (Final Score: 7/8)

Garmin (GRMN) earns a 7/8 in dividend analysis, showing strong performance and stability. Explore criteria including yield, growth, payout ratio, and coverage.

Short Analysis - Dividend Score: 7

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

The dividend analysis of Garmin (GRMN) reveals a generally positive performance and stability in its dividend policy, achieving a score of 7 out of 8. Key highlights include a consistently higher-than-industry-average dividend yield, an average annual growth rate of 15.52% (although with yearly fluctuations), and a sustainable payout ratio averaging 50.52% over the last 20 years. Dividends are well covered by both earnings and cash flow, underscoring financial robustness. Garmin's dividends have been stable for most of the 20 years, reaching $2.92 per share in 2023. The company has paid dividends for over 20 years and has strategically repurchased shares, enhancing shareholder value. However, there were some years with dividend reductions, and volatility in cash flow coverage and growth rate may require investor caution.

Insights for Value Investors Seeking Stable Income

Based on the analysis, Garmin (GRMN) is a strong option for dividend-focused investors due to its consistent higher-than-average dividend yield and sustainable payout ratio. It shows sound financial management and a commitment to shareholder returns through both dividends and share repurchases. Nonetheless, potential investors should be cautious of the historical fluctuations in growth rates and occasionally in cash flow coverage. Considering these aspects, Garmin appears worth investigating further for those interested in long-term, stable dividend stocks.

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 measures the dividend income per share relative to the market price per share. A higher dividend yield indicates that a company returns a larger portion of its earnings to shareholders in the form of dividends, which can be attractive for income-focused investors.

Garmin has a current dividend yield of 2.2717%, which is significantly higher than the industry average of 0.75%. Over the past 20 years, Garmin's dividend yield has generally been higher than the industry average, demonstrating a consistent commitment to returning value to shareholders. While the dividend yield has fluctuated, it has often been well above the industry’s, particularly in 2008 and 2010 where it reached 3.9124% and 4.8467% respectively. This strong dividend yield history, coupled with the company's solid financial position reflected by a closing stock price of $128.54 in 2023, indicates a positive trend and makes Garmin an attractive option for dividend-focused investors.

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

Dividend Growth Rate is the annualized percentage increase in dividends paid by a company. A rate higher than 5% typically indicates a strong performance and ambitious growth strategies, making the stock attractive to dividend investors.

Examining the dividend growth rate for Garmin (GRMN) over the last 20 years presents a mixed picture. While the average dividend growth is approximately 15.52%, we must observe that there have been some years with substantial volatility, even marked negative growth in certain years, such as -14.7059% in 2018 and -14.1762% in 2019. Although the overall average suggests robust growth, the inconsistency highlighted by these yearly fluctuations could potentially signal instability or irregularities in cash flow or strategic decisions. Therefore, while the trend nominally appears positive due to the average exceeding 5%, the underlying volatility might warrant a cautious approach from investors.

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

A sustainably low payout ratio is crucial for a company's financial health, as it indicates that the company is not overextending itself in dividend payments, thus preserving capital for growth initiatives and an economic cushion for difficult times.

Garmin (GRMN) showcases a commendable average payout ratio of 50.52% over the past 20 years, which is well within the 65% threshold. This indicates that the company has maintained a conservative approach towards dividend payouts relative to its earnings, ensuring that it can reinvest a significant portion back into its business. Notably, while there were some spikes during turbulent years (2014 and onward), the overall trend remained disciplined. This trend is positive as it speaks to Garmin's prudent financial management, balancing rewarding shareholders while ensuring sufficient capital retention for future growth.

Dividends Well Covered by Earnings?

Dividends being well covered by earnings indicates that the company can sustain its dividend payouts from its earnings, which is crucial for financial health.

Analyzing Garmin for the period from 2003 to 2023, we observe the ratio of Dividends per Share covered by Earnings per Share fluctuating markedly. A lower ratio signifies better coverage, implying that earnings are more than sufficient to cover dividends. In the recent years, from 2020 to 2023, the ratios stand at 0.462 (2020), 0.465 (2021), 0.566 (2022), and 0.433 (2023). This indicates that Garmin consistently maintains a healthy coverage above the 40% mark. Maintaining such a ratio demonstrates prudent financial management and implies low risk to dividend sustainability. Therefore, this trend is good for shareholders as it indicates reliable and well-covered dividend distributions. Garmin's financial health in paying dividends appears robust.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow implies that the company's free cash flow sufficiently exceeds its dividend payouts. This criterion is important as it determines the sustainability and potential growth of dividend payments.

Garmin's free cash flow has been somewhat volatile over the years, peaking at $1,181 million in 2023 and dipping to as low as $195 million in 2015. The dividend payout, however, has seen a more consistent upward trend. The ratio of dividend covered by cash flow shows significant fluctuation, with a low of 0.144 in 2009 and a high of 1.929 in 2015. Ideally, a healthy coverage ratio should be above 1, indicating that the company generates enough free cash flow to comfortably cover its dividend payouts. For some years, like 2015, 2022, and 2021, Garmin has exceeded this mark, suggesting strong dividend coverage. However, in some years (especially 2009 and 2008), the coverage was notably low, indicating potential risk. Generally, the coverage ratio trending above 0.5 in most years is good but leaves room for improvement. In recent years, touching figures like 1.25 in 2022, Garmin demonstrates more robust financial health regarding dividends coverage by cash flow.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividends is pivotal for income-seeking investors as it ensures a reliable income stream, which aids in financial planning and risk mitigation.

Over the past 20 years, Garmin (GRMN) has generally displayed consistent growth in its dividend per share. Their dividends grew from $0.25 in 2003 to $2.92 in 2023. However, it is concerning that there was a drop of more than 20% from $3.06 in 2017 to $2.61 in 2018. This notable decline breaks the otherwise reliable upward trend, introducing an element of uncertainty for some investors. Nevertheless, Garmin has managed to restore and continue growing its dividends in the subsequent years, indicating resilience and a commitment to shareholder returns. Overall, while there is a hiccup, Garmin's dividend stability is mostly positive but should be monitored.

Dividends Paid for Over 25 Years?

The criterion examines whether Garmin (GRMN) has a track record of consistently paying dividends for over 25 years. This is important for evaluating the company's reliability and consistency in returning value to shareholders.

Garmin (GRMN) has been paying dividends since 2003, starting with a dividend of $0.25 per share. Throughout the years, this dividend has shown a general upward trend, with some fluctuations, and reached $2.92 per share in 2023. Despite the fluctuations, the consistency in annual payments for over 20 years speaks positively about Garmin's financial stability and commitment to shareholder returns. However, as the company has not quite reached the 25-year mark of dividend payments, they do not fully meet this criterion yet. Nonetheless, the consistent upward trend is a good indicator of Garmin's stable financial health and shareholder-friendly policies.

Reliable Stock Repurchases Over the Past 20 Years?

Assessment of stock repurchase activity, evaluating consistency and magnitude compared to the overall trend. Important for determining commitment to shareholder value.

The number of shares has generally decreased, indicating a commitment to buybacks. Specifically, the most prominent decreases are seen from 2007 to 2010, and post-2020, suggesting periods of strategic repurchasing. The average repurchase over 20 years being -0.6345 indicates an overall reduction in share count. This is a positive trend suggesting that Garmin consistently returns excess capital to shareholders by reducing share count, enhancing shareholder value. The fact that out of the 20 years, 10 have been identified as reliable repurchase years shows Garmin's periodic but strategic approach to buybacks. This criterion is thus satisfactorily met.