Last update on 2024-06-27

Hewlett Packard Enterprise (HPE) - Dividend Analysis (Final Score: 7/8)

Explore Hewlett Packard Enterprise (HPE) dividend analysis scoring 7/8, highlighting strong yield, payout ratio, coverage by earnings, and cash flow stability.

Short Analysis - Dividend Score: 7

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

The dividend analysis for Hewlett Packard Enterprise (HPE) evaluates its dividends based on 8 criteria. HPE scores a 7 out of 8, indicating generally strong performance. Key highlights include a dividend yield of 2.8857%, which is significantly higher than the industry average of 1.19%. The company has shown a sustained increase in dividends per share since 2015, now reaching $0.49 in 2023. However, HPE's dividend growth rate is inconsistent, and it falls short on the 25-year criterion, having started dividends only in 2015. The payout ratio is conservatively low, averaging 14.77% over the past 12 years, well below the sustainable threshold of 65%. Dividend coverage by earnings and free cash flow is mixed, reflecting fluctuations through the years. HPE has demonstrated stable dividends since 2015, meeting the no-drop-20% criterion. Lastly, reliable stock repurchases enhance shareholder value but need to be tied in with more consistent dividend coverage for long-term investor confidence.

Insights for Value Investors Seeking Stable Income

Based on the analysis, Hewlett Packard Enterprise (HPE) appears to be a promising stock for dividend-focused investors. The strong, above-average dividend yield and consistent growth in dividends per share since 2015 are positive indicators. However, the inconsistent dividend growth rate and mixed earnings coverage suggest a need for cautious optimism. Investors should also consider that HPE’s dividend history is relatively short and still needs to meet the 25-year paying benchmark. Overall, HPE could be worth a closer look, particularly if the goal is to leverage its strong yield, but it would be wise to stay mindful of the company's fluctuating earnings and cash flow coverage.

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 each year relative to its stock price. It's a critical measure for income-focused investors looking into potential returns from dividend income. A yield significantly higher than the industry average could indicate a potential for higher income, relatively undervalued stock, or increased risks, depending on the context.

Hewlett Packard Enterprise (HPE) has a current dividend yield of 2.8857%, which is substantially higher than the industry average of 1.19%. This trend can be interpreted as favorable for potential investors seeking income from dividends. Historically, HPE's dividend yield has shown a significant increase from 0% in 2012-2014 to almost 3% in recent years, peaking at 4.0506% in 2020 amid a closing price of $11.85 per share. Since 2015, HPE has also regularly increased its dividend per share from $0.032 to $0.49 in 2023. This sustained growth in dividend yield, outpacing the industry average, indicates strong dividend policies and potentially favorable returns for income-focused investors. However, it is essential to weigh this against any corresponding drop in share price or external market conditions that may influence these figures.

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

The dividend growth rate measures the annualized percentage rate of growth of a company's dividend payments over a given period, typically five to ten years. It reflects a company's ability to increase its dividends paid to shareholders.

Based on the data provided for dividend payments over the last 12 years, it is clear that Hewlett Packard Enterprise (HPE) has had significant fluctuations in its dividend payouts. In 2016, the dividend per share ratio was extremely high at 490.147, but it dropped significantly in subsequent years with considerable variation. The highest growth appeared from 2022 to 2023, yet overall inconsistency prevails. Despite some years of positive payout, the average dividend ratio of 50.354 does not reflect a consistent annual growth rate of above 5% over the long term. This inconsistent dividend history is typically seen as a negative indicator for long-term investors seeking stable and predictable dividend growth.

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

The average payout ratio shows what percentage of earnings a company pays to shareholders in the form of dividends. A ratio below 65% is generally considered sustainable.

Hewlett Packard Enterprise (HPE) has an average payout ratio of 14.77% over the past 12 years, which is significantly below the 65% threshold. This indicates a conservative dividend policy, implying that the company retains a substantial portion of its earnings to reinvest in growth or for other purposes. Additionally, the peak in the payout ratio in 2017 (142.68%) and its negative value in 2020 (-192.93%) suggest extraordinary situations. Overall, the consistently low average payout ratio is a positive trend, reflecting prudent financial management.

Dividends Well Covered by Earnings?

This criterion focuses on evaluating whether the dividends are sufficiently covered by the earnings generated by the company. It is important because a strong coverage suggests that the firm is generating enough profit to comfortably pay out dividends, which indicates financial health and sustainability.

Hewlett Packard Enterprise's earnings per share (EPS) have fluctuated significantly over the years. For example, in 2012, the EPS was highly negative at -7.8978, making dividend coverage impossible. In more recent years, such as 2021 and 2022, we see EPS values at 2.618 and 0.6662 respectively. When looking at the ratio of dividends per share covered by EPS, a mixed trend is evident. In 2020, the coverage ratio dipped to -1.929, indicating that earnings were not sufficient to cover the dividends. However, it has rebounded to a more sustainable level in 2022 at 0.720. The current trend in 2023 shows a coverage ratio of 0.314, suggesting that while dividends are being consistently paid, the margin of safety provided by earnings is still variable. This fluctuation indicates a moderate to weak trend in robust dividend coverage, highlighting the importance of closely monitoring future earnings and dividend payments.

Dividends Well Covered by Cash Flow?

Assessing whether dividends are well covered by free cash flow is essential because it indicates the company's ability to sustain its dividend payments without compromising its financial stability. If dividends are well-covered, it suggests a healthy balance between rewarding shareholders and preserving cash for other operational and strategic needs.

The dividend coverage ratio for HPE has fluctuated significantly over the years. Notably, it was extremely low or negative in several years—during 2016, 2017, and 2020—indicating that free cash flow was not sufficient to cover dividend payments. This is a concerning trend, as negative ratios imply that the company might have had to dip into reserves or rely on external funding to meet dividend obligations. The years 2018 and 2019 show extraordinarily high and erratic ratios. More stable and positive coverage ratios are seen in 2012, 2013, 2014, 2021, and 2022, suggesting a better alignment between dividends paid and cash flow generated. Stability in cash flow coverage is key for consistent dividend payment, which presently appears uneven for HPE.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividend payments, without a drop of more than 20%, are crucial as they indicate a company's commitment to rewarding shareholders and show financial resilience.

Analyzing the dividend per share of HPE over the last 12 years reveals a consistent upward trend from $0.032 in 2015 to $0.49 in 2023. However, considering that dividends weren't issued before 2015, we can't perform a 20-year analysis. Over the available period, HPE has not seen a dividend drop, let alone a drop of over 20%. The drop occurred before dividends were first issued. If the consistent performance from 2015 onwards can continue, it's a positive sign for income-seeking investors.

Dividends Paid for Over 25 Years?

Examining whether Hewlett Packard Enterprise (HPE) has paid dividends for over 25 years is crucial for assessing the company's commitment to returning profits to its shareholders.

HPE has been paying dividends regularly since 2015, with the dividend per share starting at $0.032 and consistently increasing to $0.49 in 2023. Although HPE's dividend history over the past 12 years shows a relatively short duration of dividend payments, the trend indicates a consistent and increasing dividend payout. However, because HPE has only been paying dividends for 8 years, it falls short of the 25-year mark for this criterion. This trend is generally good for demonstrating a commitment to rewarding shareholders, but more years of consistent dividend payments are needed to meet the 25-year standard.

Reliable Stock Repurchases Over the Past 20 Years?

Explain the criterion for Hewlett Packard Enterprise (HPE) and why it is important to consider

Criterion: Reliable stock repurchases over the past 20 years.