Last update on 2024-06-27

Hess (HES) - Dividend Analysis (Final Score: 5/8)

Analyze the performance and stability of Hess (HES) company dividend policy using an 8-criteria scoring system over the past 20 years.

Short Analysis - Dividend Score: 5

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

The dividend analysis assesses Hess (HES) using an 8-criteria scoring system focused on dividend yield, growth rate, payout ratio, earnings coverage, cash flow coverage, stability, history, and stock repurchases. The company scored 5 out of 8. Key takeaways include: 1. Hess's dividend yield (1.2153%) is much lower than the industry average (12.75%). 2. The average annual dividend growth over 20 years is above 5% but very inconsistent. 3. 20-year average payout ratio is very low (1.16%), but some years show negative ratios. 4. Dividends have sometimes not been well-covered by earnings. 5. Cash flow coverage is unstable with several years showing negative ratios. 6. Dividends have been relatively stable over 20 years without major cuts. 7. Hess has paid dividends for over 25 years, showing commitment despite fluctuations. 8. Information on reliable stock repurchases over 20 years is missing.

Insights for Value Investors Seeking Stable Income

While Hess (HES) has shown commitment to paying dividends for over 25 years and has a relatively stable dividend payout history, the firm's low and inconsistent dividend yield, erratic dividend growth, and unstable earnings and cash flow coverage raise concerns about dividend sustainability. This stock might be a risky choice for income-focused investors looking for consistent returns. If your priority is stable and high dividend income, it might be best to consider other options in industries with higher and more reliable dividend yields.

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 measures the dividend income relative to the share price. It reflects the return on investment from dividends alone.

Hess (HES) has a current dividend yield of 1.2153%, which is significantly lower than the industry average of 12.75%. This could be seen as a negative indicator, suggesting that Hess is returning less income to investors via dividends relative to its share price compared to its industry peers. Over the last 20 years, Hess's dividend yield has fluctuated, hitting a peak of 2.4691% in 2018 but generally remaining below 2%. Despite recent increases in stock price, the dividend yield has not kept pace with industry standards. This trend is concerning and can be viewed as unfavorable for income-focused investors.

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

The Dividend Growth Rate measures the annualized percentage rate of growth of the dividend paid by a company. A rate above 5% indicates healthy growth for long-term investor value.

Examining the Dividend Growth Rate for Hess (HES) over the last 20 years, we notice erratic patterns. The dividends were absent for multiple years, including a significant number of zeros recorded in essential periods. Notably, in 2006, the dividend per share ratio spiked to 72.925 only to plunge to -42.1715 in 2007, followed by many years of zero growth. The few positive spikes like in 2012 and 2023 can not counter the overall inconsistency in terms of dividend payouts, resulting in an average growth rate of 10.26%. While it may initially appear positive given the average is above 5%, the scatter and inconsistencies pose a substantial risk for investors relying on consistent dividend income. Therefore, this trend could be deemed as bad when considering a stable criterion.

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

The payout ratio is the proportion of earnings a company pays to shareholders in dividends. A payout ratio below 65% is generally considered sustainable, allowing the company to retain earnings for growth, investments, and buffer against economic uncertainties.

The 20-year average payout ratio for Hess stands at approximately 1.16%, which is substantially below the 65% threshold. However, the year-over-year data reveals some trends worth noting. Hess has experienced negative payout ratios from 2015 to 2020, reflecting challenging periods where earnings might have been insufficient to cover dividend payments or losses were reported. Positive ratios in other years, such as 2021 (54.99%) and 2022 (22.05%), indicate recovery periods. On balance, a low average payout ratio is positive but merits further examination due to periods of negative economics.

Dividends Well Covered by Earnings?

Earnings per share (EPS) indicate a company's profitability on a per-share basis, while dividends per share (DPS) represent the portion of that profit distributed to shareholders. Evaluating the coverage ensures the company can sustain its dividend payment without jeopardizing financial stability.

Over the past two decades, Hess (HES) has shown fluctuating EPS figures with notable downturns from 2013 to 2020. For instance, EPS dropped from $14.82 in 2013 to a stark low of -$19.37 in 2016. However, 2021 and 2022 reflect a recovery with values of $1.82 and $6.80, respectively. When comparing EPS to DPS, coverage ratios have varied markedly. For example, the ratio plummeted to -1.057 in 2018, signifying dividends were paid out despite negative earnings, a financially unsustainable approach. Positive periods, like 2022 with a 0.22 ratio, illustrate better coverage, though ideally, the ratio should be higher for more secure dividend sustainability. This volatile trend implies a less consistent capability to cover dividends through earnings, highlighting financial challenges.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow means that the company generates enough free cash flow to pay out dividends to shareholders without needing to dip into reserves or take on debt. It is crucial because it shows the sustainability of the dividend payments and overall financial health.

For Hess (HES), the ratio of dividends covered by cash flow fluctuates significantly from 2003 to 2023. Positive ratios indicate that free cash flow sufficiently covers dividends, as seen in 2003 (0.484), 2004 (0.411), 2008 (1.008), 2009 (1.023), 2021 (0.272), and 2022 (0.381). However, several years show negative ratios, suggesting free cash flow was not enough to cover dividends, notably in 2016 (-2.184) and 2023 (-3.247). These fluctuations are concerning as they indicate inconsistency in free cash generation, making the dividend unsustainable during poor cash flow years. Overall, this trend is bad for assessing dividend stability.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends, with changes not exceeding a decrease of 20%, over the last 20 years is crucial for income seekers to ensure reliable cash flows.

Over the past 20 years, Hess Corporation (HES) has maintained a relatively stable dividend payout with no significant drops exceeding 20%. The dividend per share has shown resilience and a commitment to returning value to shareholders. The dividend went from $0.4 per share in 2003 to $1.752 per share in 2023, demonstrating a gradual increase with only minor fluctuations. Notably, the dividend saw a rise from $0.7 in 2013 to $1.752 in 2023, a positive trend for income-seeking investors looking for stable and growing dividends. This ongoing upward trend is a good indicator of Hess's strong financial health and shareholder-friendly approach.

Dividends Paid for Over 25 Years?

The consistency of dividends paid over a long period, such as 25 years, is a strong indicator of a company's financial stability and its commitment to returning value to shareholders.

Hess (HES) has paid dividends consistently for over 25 years, with the annual dividend per share ranging from $0.2 in 1998 to $1.752 in 2023. This long history of dividends showcases Hess's commitment to rewarding its shareholders and indicates a stable financial footing. However, the fluctuations in dividend amount, particularly noticeable in certain years, suggest variability tied to the company’s performance or broader economic conditions. For instance, the significant increase from $0.2 in 2001 to $0.7 in 2013, and further to $1 in subsequent years, reflects a positive trend in value returned to shareholders. The consistency in recent years emphasizes reliability; hence, this trend is generally good, promising sustained investor confidence.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable Stock Repurchases Over the Past 20 Years

A key criterion for evaluating a company's financial health and shareholder value creation is its commitment to stock repurchases over an extended period. Repurchasing shares can indicate management’s confidence in the company's future prospects and help boost earnings-per-share (EPS).