Last update on 2024-06-27

Halliburton (HAL) - Dividend Analysis (Final Score: 5/8)

Evaluate Halliburton (HAL) dividend policy stability and performance, with a score of 5/8 using an 8-criteria system. Insights on yield, growth, and coverage.

Short Analysis - Dividend Score: 5

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

The dividend analysis for Halliburton (HAL) based on an 8-criteria scoring system reveals some strengths and concerns. Halliburton scored 5 out of 8 on the criteria. The current dividend yield is below the industry average, and historically there's been significant variability, which may be unattractive to income-focused investors. The average dividend growth rate over the past 20 years shows high growth but with inconsistency. The payout ratio is generally low, indicating potential for coverage, but negative figures in some years highlight financial distress. Dividends are sometimes not well covered by earnings or cash flow, showcasing volatility. HAL has shown inconsistent dividend stability with significant drops but has maintained dividends for 25+ years, reflecting resilience. Historically, stock repurchases display moderate reliability but vary, suggesting an opportunistic rather than consistent buyback strategy.

Insights for Value Investors Seeking Stable Income

Based on the analysis, potential investors, especially those seeking steady and reliable dividend income, should be cautious with Halliburton (HAL). While the company has shown long-term resilience and commitment to dividend payments, the significant historical inconsistencies, particularly in dividend yield, coverage, and stability, signal potential risks. Those willing to tolerate some volatility in exchange for potential growth might find HAL worth considering, but solid due diligence on its financial trends and industry conditions is recommended.

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 the dividend income per share divided by the price per share. It reflects the return on investment from dividends alone.

Halliburton's current dividend yield of 1.7704% is below the industry average of 2.78%, which could be perceived as less attractive to income-focused investors comparing yields. Over the last 20 years, HAL's dividend yield has fluctuated significantly, peaking around 2008 and during periods of high stock price volatility. Compared to its historical yields, the current yield is average, and though there were years with higher percentages (2018 saw a yield of 3.386%), the general trend suggests higher variability in dividends along with market conditions. This inconsistency, along with below-average yield, may raise concerns about reliability for dividend-seeking investors.

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

Dividend growth rate analysis involves examining changes in dividend payouts over time. A higher growth rate reflects a company's potential for long-term wealth generation and stability.

Over the last 20 years, Halliburton's average dividend growth rate was approximately 10.73%, with notable fluctuations. Specifically, years such as 2006 saw growth rates as high as 20%, while 2021 experienced declines over 40%. This significant variance demonstrates an inconsistent dividend policy, likely influenced by cyclical industry dynamics and earnings variability. Despite averaging above the 5% mark, investors should note this unpredictability and assess the sustainability of future dividend commitments based on present and forecasted business conditions.

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

Criterion 1.2: Average Payout Ratio lower than 65% in the last 20 years

Halliburton's (HAL) average payout ratio over the last 20 years stands at approximately -3.84%. This is significantly lower than the 65% threshold. Generally, a payout ratio below 65% indicates a company's earnings are sufficient to cover its dividend payments, suggesting financial stability. However, Halliburton’s negative average payout ratio signals periods of net losses rather than low dividend payments. Specifically, the negative payout ratios in several years (e.g., -26.65% in 2003, -91.53% in 2015, and -135.29% in 2017) highlight years when the company recorded net losses but might have still paid dividends. Contextually, these results are troubling as they indicate financial distress during those periods, which can compromise its ability to maintain consistent dividend payments. Years with positive payout ratios show more stability, but the trend's inconsistency suggests volatility in earnings, aligning poorly with sustainable dividend practices.

Dividends Well Covered by Earnings?

Earnings per Share (EPS) is a significant profitability indicator that measures the portion of a company's profit allocated to each outstanding share of common stock. It is a crucial metric for investors as it demonstrates a company’s capacity to generate profits. The Dividend per Share (DPS) indicates how much a company pays out in dividends for each share owned. The ratio of DPS to EPS reveals whether the dividends are well-covered by the earnings. A ratio above 1 signifies that the company is paying out more in dividends than it earns, which is unsustainable in the long term.

Examining Halliburton’s data, the trend of the EPS shows significant volatility over the years, moving from negative values in some years (e.g., -$6.69 in 2016) to highs of $4.108 in 2014. The company has experienced periods of unprofitability, notably in 2016 and 2020. When we map this against the Dividend per Share, we see that in most years, the dividends are well-covered by the earnings, as evidenced by ratios below 1. However, there are troubling periods, such as 2016 with -$6.6934 EPS but a substantial dividend of $0.72 per share, resulting in a negative coverage ratio. This indicates unsustainability and the potential for dividend cuts during tough times, as seen in 2020 when the dividend was significantly reduced to match lower earnings. Although recent years show more prudent dividend payouts relative to earnings (e.g., 0.218 in 2023), the inconsistency in EPS and high payout ratios during unprofitable years showcase a risk. This situation is generally deemed unfavorable for dividend reliability. Investors should be cautious and consider the firm’s profitability trends before making decisions, particularly with HAL’s cyclical industry.

Dividends Well Covered by Cash Flow?

The dividend coverage ratio by cash flow indicates how many times a company can cover its dividend payouts with the cash flow generated from its operations. This is important as it shows the sustainability of the dividend payments.

Analyzing Halliburton's free cash flow and dividend payout from 2003 to 2023, we observe significant fluctuations in the coverage ratio. Negative ratios in 2003 and 2016 (-0.17 and -0.25, respectively) indicate periods where free cash flow was insufficient to cover dividends, posing challenges to dividend sustainability. High positive ratios, such as 3.78 in 2012, suggest ample cash flow capacity. The more recent figures from 2019 onwards, notably ranging from 0.14 to 0.69, suggest weaker but generally improving coverage, with 2023 showing a ratio of 0.28. While historical volatility shows potential risks, the uptick in recent years is promising but still reflects moderate coverage, signaling ongoing evaluation for concerned investors.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends over the past 20 years means that for every year, the dividend per share either increased or did not drop by more than 20%. It is crucial as it indicates a reliable income stream for investors.

Looking at the historical data for Halliburton (HAL), several years stand out where the dividend per share witnessed a drop greater than 20%. For instance, between 2017 and 2018, it fell from $0.72 to $0.315, a substantial decline. More recently, between 2019 and 2020, the dividend per share again decreased to $0.18 from $0.315. Stability in dividends is vital for income-seeking investors, as a consistent payout stream avoids significant income fluctuations. Given these significant drops, HAL fails to demonstrate consistent dividend stability, challenging its appeal to those reliant on a stable income stream from dividends. This trend signals caution for potential investors prioritizing dividend stability.

Dividends Paid for Over 25 Years?

This criterion assesses whether the company has a consistent history of paying dividends for over 25 years. Paying dividends continuously for such a long period demonstrates a company's stability, reliability, and shareholder-friendly policies.

Halliburton (HAL) has paid dividends for each of the past 25 years, from 1998 to 2023, inclusive. The dividend per share has shown both periods of stability and growth, with notable increases in 2013 through 2019, before experiencing a dip in 2020 and partial recovery thereafter in 2021 and 2022. Overall, consistent dividend payments for 25 years is highly positive as it showcases the company's ability to generate sufficient cash flow to reward shareholders, reflecting positively on its financial stability and management commitment to shareholder returns. While there was a significant reduction during the 2020 period, likely due to external economic pressures (such as the COVID-19 pandemic and a drop in oil prices impacting the energy sector), the partial recovery seen in subsequent years indicates resilience and a positive long-term outlook.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases indicate that a company can reward shareholders consistently. This can be a signal of strong financial health and cash flow stability, essential factors for dividend investors to assess the sustainability of future payouts.

Halliburton (HAL) shows varied behavior concerning share repurchases over the last 20 years. Significant reductions in share count were evident in the years 2007, 2008, 2009, 2013, 2014, 2019, and 2023. These reductions suggest good cash flow management during these periods allowing for stock buybacks. For instance, shares dropped from 1.038 billion in 2005 to 902 million in 2008, and similarly, from 902 million in 2013 to 852 million in 2014. However, there were years of increased share counts too, meaning the company issued new shares likely to raise capital. On average, a purchase rate of 0.2564 indicates moderate reliability, but fluctuations should be a concern for long-term buy-and-hold investors. Overall, while HAL has taken steps to return value to shareholders via repurchases, the cyclical nature of its buyback program implies a more opportunistic rather than a consistent long-term strategy, which is moderately positive but not entirely dependable.