Last update on 2024-06-27

HP (HPQ) - Dividend Analysis (Final Score: 7/8)

Analyze HP (HPQ)'s dividend policy using an 8-criteria scoring system. Find out how HP fares in performance and stability. Final Score: 7/8.

Short Analysis - Dividend Score: 7

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

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 refers to the ratio of a company's annual dividend compared to its share price. It is an important metric for income-focused investors as it indicates the return on investment in the form of dividends.

HP Inc.'s current dividend yield of 3.5394% is compared to the industry average of 8.48%. Over the past 20 years, HPQ's dividend yield has fluctuated, generally lying between just above 0.6% and 4.2%. The reason behind today's lower-than-average dividend yield could be attributed to HP's stronger stock price performance compared to its dividend growth. Since dividend yield is a function of dividends paid and stock price, a higher stock price will result in a lower yield if dividend growth doesn't match. HP's current stock price of $30.09 is near its historical highs (the highest was $37.67 in 2021), suggesting robust market valuation. However, with this lower yield compared to the industry average, HP can appear less attractive from an income investment perspective. This trend might be considered bad for dividend-focused investors. Nevertheless, HP's consistent dividend payments, showing an increase over time (from $0.1453 in 2003 to $1.065 in 2023), signal sustainability and fiscal health, even if its yield is lower than the industry average.

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. This rate shows how the dividend paid by a company has increased over time.

In the last 20 years, HP (HPQ) has exhibited a highly volatile dividend growth rate. A direct calculation of the average dividend growth rate from the figures provided yields an average dividend ratio of 11.22%. This figure is quite high and surpasses the 5% benchmark quite comfortably. However, a closer examination reveals inconsistencies and negative values, such as the -14.47% in 2017. It indicates that while HP has been able to grow its dividends above the desired threshold on average, it suffers from erratic fluctuations, potentially troubling prospective investors. Therefore, while the average trend seems good, the volatility might pose a risk.

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

The average payout ratio is a critical measure that helps to understand how sustainable a company's dividend payments are over time. A ratio lower than 65% suggests that the company is retaining enough earnings to invest back into the business while still providing a steady payout to shareholders.

For HP (HPQ), the average payout ratio over the last 20 years is approximately 17.02%. This is significantly lower than the benchmark of 65%, which indicates that HP has maintained a very conservative approach towards its dividend payouts. Such a low payout ratio is good as it suggests that the company has been careful to retain the majority of its earnings for reinvestment in growth and operations. Furthermore, even though there were years, such as 2012, with negative or significantly low payout ratios, the overall trend stays well within the healthy zone. This conservative strategy could be beneficial for long-term shareholders who are looking for sustained growth in dividends in the future.

Dividends Well Covered by Earnings?

Earnings per share (EPS) should cover dividend per share adequately. This shows if the company has sufficient earnings to pay dividends.

The trend of EPS and dividends suggests mixed signals for HP (HPQ). From 2003 to 2023, the dividend per share has steadily increased from $0.1453 to $1.065, showing a consistent commitment to returning value to shareholders. However, the proportion of dividends covered by earnings per share fluctuates significantly. For instance, in 2012, the EPS was -$6.4083, leading to a negative coverage ratio. This is a critical red flag as it indicates that earnings were insufficient to cover dividends, likely leading to the company using reserves or increasing debt for payout. In more recent years (2021-2023), the dividend coverage ratio has also witnessed instability. The EPS coverage stood at roughly 15% in 2021 which is low, increasing to approximately 33% by 2023. While the ratio shows improvement, the ideal standard generally accepted is a payout ratio below 60 - 70%. HP's gradually improving trend is positive, but the historical volatility raises concerns about the sustainability and stability of its payouts.

Dividends Well Covered by Cash Flow?

Availability of sufficient cash flow to cover dividend payments is crucial for a company's financial health as it indicates sustainability of dividends.

HP (HPQ) has shown varied ability over the years to cover its dividends with free cash flow. From a low of 6.86% in 2008 to a high of 43.30% in 2015, the coverage ratio has often fluctuated. This trend illustrates a rather inconsistent pattern which raises questions about the sustainability of its dividend policy. Such low covers as seen in multiple years (below 15%) suggest potential risks as there may not always be sufficient cash flow diverted to these returns for investors. However, more recent years show some improvement, particularly 2023, which stands at 35%. This latter trend is more promising, but investors must remain cautious particularly given HP's volatile history in this aspect.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends are crucial for income-seeking investors because they provide a reliable source of income year after year. If the dividend per share decreases significantly, it can signal underlying financial issues within the company and result in a loss of investor confidence.

The analysis of HP's dividend payments over the past 20 years reveals commendable stability. Starting at $0.1453 per share and steadily increasing to $1.065, HP has shown a consistent upward trend, apart from a minor decrease from $0.629 in 2016 to $0.538 in 2017, representing a drop of approximately 14.5%. This decrease, although notable, does not meet the 20% threshold of concern, indicating HPQ maintained commendable dividend stability. Hence, for income-seeking investors looking for a relatively stable investment, HPQ shows decent promise.

Dividends Paid for Over 25 Years?

Dividends Paid for Over 25 Years criterion assesses whether the company has a long history of consistently paying dividends. This is crucial because it reflects the stability and reliability of the company’s financial health and its commitment to returning value to shareholders.

HP has paid dividends consistently over the last 25 years. Starting with a dividend per share of $0.1408 in 1998, it has increased progressively, reaching $1.065 in 2023. This consistent increase is a positive trend and indicates a commitment to returning value to shareholders. The significant increase in 2000, and steady growth thereafter, strengthens HP's credibility as a reliable dividend-paying stock. This longevity and consistency are excellent indicators of HP’s stability and financial health, making it an attractive option for dividend-focused investors.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases signify a company's commitment to returning value to shareholders by reducing the number of outstanding shares, which can boost shareholder value.

Over the past 20 years, HP (HPQ) has consistently repurchased shares, with the number of shares decreasing from 3,063 million in 2003 to 992 million in 2023. This trend is indicative of reliable stock repurchases, with only minor increases which could be due to various strategic reasons. The ongoing reduction in shares underscores the company's disciplined approach towards enhancing shareholder value. The average repurchase rate of -5.4045% per year shows a strong commitment to repurchasing shares. This is generally good for investors as it implies a shrinking share base, potentially increasing the value of remaining shares and indicating robust financial health and strong cash flow management by HP.