Last update on 2024-06-27

Howmet Aerospace (HWM) - Dividend Analysis (Final Score: 4/8)

Analyze the dividend performance and stability of Howmet Aerospace (HWM) using an 8-criteria scoring system. Final Score: 4/8.

Short Analysis - Dividend Score: 4

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

The analysis uses an 8-criteria scoring system to grade Howmet Aerospace's (HWM) dividend policy, giving it a score of 4. The company's dividend yield is significantly lower than the industry average, suggesting prioritization of internal investment or debt reduction over shareholder payouts. Their average annual dividend growth rate exceeds 5%, indicating positive growth but with significant volatility. The payout ratio in recent years is low but past years show negative values, implying former financial difficulties. Dividends covered by earnings and free cash flow have seen improvements, but the historical volatility remains concerning. The company began paying dividends in 2016, and their payments have been inconsistent, making it less reliable for income-focused investors. HWM's dividend history is less than the 25-year benchmark expected by long-term investors. Lastly, stock repurchasing has been substantial but inconsistent, reflecting strategic adjustments rather than a steady pattern.

Insights for Value Investors Seeking Stable Income

While Howmet Aerospace shows promising signs of growth and financial recovery, its dividend history is relatively short and inconsistent. The historical volatility in dividend payments and coverage from earnings and cash flow could be a red flag for income-focused investors. However, those looking at potential growth and willing to take on some risk might find value in closely monitoring the company's future performance. Overall, it might not be the best option for investors seeking stable and reliable dividend income, but can be considered for growth-oriented portfolios with a cautious approach.

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 indicator for income-focused investors, as it provides insights into the income generated from investing in one share of the company.

The current dividend yield of Howmet Aerospace (0.3141%) is significantly lower than the industry average (1.57%). This trend has been persistent over the years as seen from comparing historical data for both Howmet (ranging from 0 to 1.4235% over the last 20 years) and the industry average (ranging from 0.91% to 2.89%). The reduced yield is indicative of the company's relatively lower payout ratio, reflecting a potential strategy focusing more on internal investments or debt reduction than immediately rewarding shareholders. Although this could be considered a negative trend for an income-seeking investor, it is essential to consider the long-term strategic benefits like reinvestment and growth. Evaluating Howmet Aerospace's stock price trends also shows fluctuations that might play a part in impacting the yield consistently.

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

The dividend growth rate measures the annualized percentage increase in a company's dividend payments over a period. It is crucial for assessing the ability of the company to grow its dividend over time, indicating financial health and commitment to returning value to shareholders.

When analyzing Howmet Aerospace's (HWM) dividend data over the last 20 years, the average dividend growth rate stands at 10.48%. Despite a few negative growth years (notably 2019 and 2020), the rate rebounded strongly with an impressive 100% growth in 2021 and 150% in 2022. 2023, however, reflects a growth deceleration with a rate of 70%, though still positive. This trend suggests a volatile but generally upward trajectory. Hence, the dividend growth rate exceeding 5% on average is good, but the volatility indicates uncertainty and requires careful consideration.

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 the form of dividends. A lower ratio suggests the company retains more profits for growth.

When evaluating Howmet Aerospace’s (HWM) payout ratio over the past 20 years, several critical observations arise. Notably, the company didn't pay dividends in a majority of the years within this period, specifically from 2003 to 2015, which is reflected by a payout ratio of 0% during those years. The negative and extremely high ratios in 2016 and 2017, specifically -8.38% and -146.25%, indicate some significant financial disturbances or restructuring at the company. An average payout ratio of -4.59% is highly unusual and calls for scrutiny. However, focusing on the recent years with more stable ratios, having values around 18.79%, 11.39%, and single digits suggests a cautious approach toward dividend payouts. This trend can be viewed favorably as it indicates management's focus on stabilizing financial health before rewarding shareholders.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings. This criterion assesses a company's ability to pay dividends out of its net earnings. It is important because consistent and well-covered dividends often signal a company's strong financial health and sustainability.

Howmet Aerospace's EPS has seen high volatility over the years, with significant fluctuations especially noticeable between 2003 and 2017. The company started paying dividends only in 2016, but the coverage of these dividends by EPS has been inconsistent. For example, in 2017 and 2018, the coverage ratios were negative (-1.46 and 0.19, respectively), indicating that the company paid more in dividends than it earned per share. However, the situation appears to be improving from 2019 onwards, with coverage ratios becoming positive and increasing gradually. This is a good trend; however, given the historical volatility, investors should still be cautious and monitor the consistency of earnings over time. Robust earnings will be crucial for maintaining and potentially increasing dividend payouts.

Dividends Well Covered by Cash Flow?

Dividends Well Covered by Cash Flow is an essential criterion for assessing a company's ability to maintain and potentially increase its dividend payout. The free cash flow (FCF) represents the cash a company generates after accounting for capital expenditures, and it is a crucial indicator of financial health and operational efficiency. If a company's dividends are well covered by its FCF, it implies that the dividends are being paid from real cash generated by the business, ensuring the sustainability of these payments. Conversely, if the dividends exceed the FCF, it may suggest that the company is borrowing or using other non-operational means to fund its dividends, which can be risky and unsustainable.

The analysis of Howmet Aerospace's free cash flow and dividend payouts over the years presents some concerning trends. For instance, negative FCF in years such as 2016 (-$255M), 2017 (-$551M), and 2018 (–$180M) indicate that the company was not generating enough cash from its operations to cover its expenditures, let alone its dividends. The FCF coverage ratios were also negative in those years, corroborating the potential unsustainability of its dividend payments during these periods. A closer look at the positive FCF years, particularly 2010, 2012, and 2015, reveals healthier coverage ratios, such as 0.10 in 2010 and 0.55 in 2015. These imply that a part of the dividends was adequately covered by FCF. However, consistently low or negative coverage ratios for extended periods can be detrimental to investor confidence, as observed during 2020 (0.08) despite improvements in FCF ($540M in 2022 and $682M in 2023). Overall, while Howmet Aerospace has had years of sufficient FCF to cover its dividends, the inconsistencies necessitate cautious optimism. Long-term stability in generating FCF remains critical for sustaining and possibly growing dividend payments.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments, where the dividend per share did not drop by more than 20% over the past two decades, is of utmost importance for income-seeking investors.

Examining the dividend payments for Howmet Aerospace (HWM) over the past 20 years reveals a mixed trend. The company only began issuing dividends in 2016, with an initial dividend per share of $0.18. Following this, there was an increase in 2017 to $0.24, which is a positive sign. However, in 2019, there was a significant drop from $0.24 to $0.12, equivalent to a 50% reduction. The downward trend continued with dividends further decreasing to $0.02 in 2020 before rebounding slightly to $0.04, $0.10, and eventually $0.17 in 2023. This considerable volatility might be concerning for income-seeking investors who prioritize stable and reliable dividend payments. The 50% drop from 2018 to 2019 alone exceeds the 20% threshold for a year-on-year decline, and subsequent years show continued instability. While the more recent trend from 2020 to 2023 shows a gradual increase, the initial drastic cuts raise questions about the company's dividend stability and predictability, making it less appealing for those specifically seeking consistent income from dividends.

Dividends Paid for Over 25 Years?

Evaluating whether a company has consistently paid dividends for over 25 years is crucial in determining its long-term commitment to returning value to shareholders.

Based on the data provided for Howmet Aerospace (HWM), we observe dividends only starting in 2016. The first dividends per share recorded were $0.18 in 2017, $0.24 in 2018-2019, but they decreased to $0.12 in 2020, further dropping to $0.02 in 2021, then rose slightly to $0.04 in 2022, ending at $0.1 in 2023. Given this, it's evident that HWM has only a relatively short history of paying dividends, which is significantly less than the 25-year benchmark. The volatility in the dividend payments, particularly the sharp downturns during the 2019-2021 period, signals instability. Despite the slight recovery in 2022 and 2023, this inconsistency may raise concerns for long-term dividend investors assessing HWM’s reliability for stable dividend income. Therefore, based on this criterion, the trend is not favorable.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable Stock Repurchases Over the Past 20 Years

Analyzing the number of shares over the past twenty years shows that Howmet Aerospace has undergone various changes in their outstanding shares. In certain years, the company executed significant stock repurchases, most notably in 2014, 2016, 2019, 2020, 2021, 2022, and 2023. For instance, in 2014, the shares decreased from 733,333,333 in the previous two years to 443,000,000. Similar significant reductions are seen later. These reductions in share count can be positive, as they may lead to an increase in earnings per share (EPS) and demonstrate the management's confidence in the company’s future. However, the fluctuation between years suggests that repurchase activity has not been consistent annually, indicating strategy adjustments or reactions to market conditions rather than a steady, dependable trend. Thus, the trend may not be termed highly reliable, though the average depicts commendable repurchase activity.