Last update on 2024-06-27

Independent Bank (IBCP) - Dividend Analysis (Final Score: 4/8)

Independent Bank (IBCP) - Comprehensive Dividend Analysis highlighting its 4/8 score based on an 8-criteria system. Discover performance insights and stability.

Short Analysis - Dividend Score: 4

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

The dividend analysis evaluates Independent Bank (IBCP) using 8 key criteria to gauge its dividend performance and stability. The criteria include comparisons to industry averages, historical dividend growth, payout ratios, and the consistency of dividends and share repurchases. Independent Bank exhibits a 1.7679% dividend yield, lower than the industry average of 2.76%, and shows significant fluctuations in dividend payment history. Its 20-year average dividend growth rate is -3.8895%, significantly below the desirable 5%. Despite maintaining a low average payout ratio of 25.54%, which suggests efficient earnings retention, there's a history of inconsistent coverage of dividends by free cash flow. Since 2014, dividends have been generally steady but with notable drops, particularly following the 2008 financial crisis. Over 25 years, the bank halted dividends only from 2010 to 2013 but resumed thereafter. Share repurchase activities have fluctuated, raising concerns about the commitment to this practice. The overall score from the analysis is 4 out of 8.

Insights for Value Investors Seeking Stable Income

The analysis indicates a mixed performance for Independent Bank in terms of its dividend policy. While the bank shows prudent earnings maintenance, its unstable dividend payments, and inconsistent dividend coverage by cash flow, with a recent lower than industry average yield, are concerning. The company's 20-year track record includes notable gaps and substantial fluctuations, which could be less attractive to income-seeking investors. Despite some positive signs of recovery in recent years, the overall performance suggests caution. If you're considering long-term, stable dividend-paying stocks, it might be worth exploring other options that demonstrate more consistent and robust dividend health.

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?

The dividend yield represents the dividend income, as a percentage of the stock price, that investors receive for each dollar invested in the stock. It's crucial because it indicates the level of dividend income and can be a sign of financial health and shareholder generosity.

Independent Bank (IBCP) currently has a dividend yield of 1.7679%, which is lower than the industry average of 2.76%. Looking at the historical data, the dividend yield for Independent Bank has varied significantly over the past 20 years, with notable highs in 2008 (1.6204%) and drastic lows when no dividends were issued from 2009 to 2012. In the recent decade, the yield has generally ranged between 1.3793% (2013) and 4.3313% (2020). Despite the recent yield of 1.7679% being lower than the industry average, it represents a rebound from the significant lows a few years earlier. This trend is moderately positive for investors, showcasing a recovery and a level of consistency in issuing dividends, although it’s still lagging behind the industry average. The fluctuation in yields over the years suggests a cautious approach from the bank, possibly influenced by broader economic conditions and internal financial health.

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

The Dividend Growth Rate criterion indicates the annualized percentage rate of growth that a particular stock's dividend undergoes over a specific period of time. Assessing this metric over 20 years helps establish a long-term trend.

Analyzing Independent Bank's (IBCP) last 20 years of dividend growth data, we see wide fluctuations, including some substantial negative years like 2004 (-35.5348%) and 2008 (-57.8313%). The average dividend growth rate over this period is -3.8895%, which is well below the 5% benchmark. This trend signals instability and inconsistent dividend performance, which can be discouraging for long-term income-focused investors.

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

The payout ratio is a metric that shows what percentage of a company's earnings are paid out as dividends to shareholders. A lower payout ratio, generally below 65%, indicates that the company is retaining more earnings for growth, sustainability, and future dividends.

The average payout ratio of Independent Bank (IBCP) over the last 20 years stands at 25.54%, which is well below the 65% threshold. This is a favorable trend, implying that the company has consistently managed its earnings efficiently and has opted to retain a significant portion of its profits to potentially fund operational needs, growth, and expansion. Notably, for some years (2009-2012 and 2023), the payout ratio was 0% or even negative, indicating a period of retained earnings and possibly no dividend payments, which can occur during financially strategic periods or economic downturns. Despite a high payout ratio in 2007 (113.48%) and a negative payout ratio in 2008, the overall sustainable low average implies strong financial health and prudence in financial management over the long term.

Dividends Well Covered by Earnings?

Explain the criterion for Independent Bank (IBCP) and why it is important to consider

Earnings per share (EPS) indicates how much money a company makes for each share of its stock. Dividends per share (DPS) indicates how much money a company returns to its shareholders for each share of its stock. A well-covered dividend means that the EPS should be substantially higher than the DPS, ensuring that the company has enough profits to safely pay its dividends without taking on additional debt or cutting back on essential operations. This is a key indicator of financial health and sustainability for dividend-paying companies.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow is crucial because it shows the company's ability to sustain dividend payments from operational cash flow, ensuring financial stability.

Examining the coverage ratio over the past 20 years, Independent Bank (IBCP) has had an inconsistent track record in covering dividends with its free cash flow. Notably, years 2003 to 2008 showed volatility in coverage ratios, including negative coverage in 2009 and no dividend payment in 2010-2013. Since 2014, though better, coverage remained fluctuating, peaking at 0.57 in 2019 but declining thereafter. Sustainability may be at risk if the trend continues. A ratio of at least 1 is desirable, indicating all dividend payouts are comfortably within generated free cash flows.

Stable Dividends Since the Company Began Paying Dividends?

Explain why stability in dividends over the past 20 years is crucial, especially for income-seeking investors.

The evaluation of Independent Bank’s (IBCP) dividends over the last 20 years shows significant fluctuations. The dividend per share had dramatic drops, particularly during and after the 2008 financial crisis, going from $0.83 (2007) to $0.03 (2009) and then to $0 in subsequent years (2010-2012). Dividend payments only resumed minimally in 2014 at $0.18. Although there have been incremental increases throughout the years, reaching $0.88 in 2022, the 2023 dividend decreased again to $0.46. This volatility in dividends implies that IBCP has not been able to provide stable income over two decades, which is crucial for income-seeking investors relying on consistent dividend payouts. Therefore, the trend of these unstable dividends is bad, highlighting a risk factor for potential and current investors.

Dividends Paid for Over 25 Years?

Dividends Paid for Over 25 Years criterion assesses whether a company has demonstrated its ability to consistently pay dividends over an extended period. This is important as it reflects the company's financial health and commitment to returning value to shareholders.

The data shows that Independent Bank (IBCP) has paid dividends consistently from 1998 through 2023, with the exception of the years 2010 through 2013. While the company did not pay dividends during those four years, it reinitiated dividend payments in 2014 and has been steadily increasing them since. In recent years, the dividend per share has been growing, with 2023 showing a dividend of $0.46 per share. Although there was a lapse in dividend payments, the overall trend since reinstating dividends indicates a positive trajectory, suggesting good financial health and a commitment to shareholder returns.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases evaluate a company's commitment to returning value to shareholders by reducing its outstanding shares. Consistency over time is a key factor.

Independent Bank's share repurchase activity has seen fluctuating trends over the past 20 years. Notably, shares were reliably repurchased during 2006, 2007, and from 2019 to 2023, indicating a relatively recent commitment to the strategy. However, the average repurchase figure of -2.8915 indicates an overall increase in shares rather than a decrease for this period. This suggests that on average, the bank has issued more shares than it has repurchased, raising questions about its long-term commitment to reducing outstanding shares and returning value to shareholders. The historical peaks in shares, particularly in years like 2009 (19,673,156 shares) and 2017 (27,372,104 shares), underscore periods of significant share issuance likely tied to capital raising efforts. Overall, the sporadic trend in share repurchases, combined with an average increase in shares, signals a lack of strong, consistent commitment to a share buyback strategy.