Last update on 2024-06-27

InterDigital (IDCC) - Dividend Analysis (Final Score: 5/8)

Get insights into InterDigital (IDCC)'s dividend performance, stability analysis with an 8-criteria scoring system, and detailed historical data.

Short Analysis - Dividend Score: 5

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

InterDigital (IDCC) has been evaluated based on eight key criteria to determine its dividend performance and stability. The company's dividend yield for 2023 is significantly lower than the industry average and its historical yields have been inconsistent. The dividend growth rate has shown erratic behavior with high variability, indicating instability in its dividend policy. Though it has maintained an average payout ratio lower than 65%, suggesting sustainable dividends, its dividends are not well-covered by earnings or cash flow consistently. IDCC has shown stability in its dividend payments only after 2011 but does not meet the 25-year dividend payment benchmark. The company also lacks reliable stock repurchase trends, raising concerns about its financial stability and shareholder value commitment.

Insights for Value Investors Seeking Stable Income

Given InterDigital’s (IDCC) low and inconsistent dividend yield, erratic dividend growth rate, and limited history of paying dividends, it may not be the best choice for income-focused investors seeking stable and reliable dividend payments. The company's dividends are also not consistently covered by earnings or cash flow, which further adds to the risks. It's possibly worth looking into other companies with stronger and more consistent dividend histories and financial stability if dividend income is a primary goal.

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 an important metric because it measures the cash return that an investor would earn for each dollar invested in the company’s stock. A higher yield can signify a good income-generating investment, though it also might indicate potential underlying issues with the company, such as declining stock prices or earnings.

InterDigital's dividend yield for 2023 stands at 0.9674%, which is significantly lower than the industry average of 3.56%. Historically, InterDigital's yield has fluctuated drastically, peaking at 4.624% in 2012 and maintaining generally low yields since then. Comparatively, the industry average has been more consistent, hovering in the range of 2.56% to 6.33% over the last two decades. Given this data, InterDigital's low dividend yield is a poor signal for income-focused investors. The relatively low yield might be a reflection of its oscillating stock price, which closed at $108.54 in 2023 from a low of $18.32 in 2005. The dividend per share also saw variability but never surpassed $2. This variance suggests that InterDigital has not positioned itself as a strong, reliable dividend-paying stock. Lower dividend yields, especially below industry averages, typically indicate that the company either has less capacity to pay dividends consistently or is not as committed to returning profits to shareholders.

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

The Dividend Growth Rate criterion evaluates the sustainability and predictability of a company's dividend payments, with a consistent growth rate above 5% indicating strong financial health and shareholder value.

Over the past 20 years, InterDigital (IDCC) has shown erratic behavior in its dividend growth rate with several negative spikes and missing years. The average dividend ratio stands at 18.02%, which is relatively high. However, the inconsistency and volatility, demonstrated by values like -84.21% in 2013 and 0% in multiple years, indicate that the company has not maintained a stable dividend growth rate. These negative values are concerning and suggest that InterDigital's dividend policy may not be reliable or sustainable. This trend is not favorable as it reflects potential difficulties in maintaining consistent shareholder returns.

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 typically suggests that the dividend is more sustainable.

InterDigital (IDCC) has demonstrated an average payout ratio of 33.27% over the last 20 years, well below the 65% threshold. This low average ratio suggests the company has had healthy earnings relative to its dividend payments, providing room for growth and financial flexibility. Notably, the payout ratio exceeded 65% in a few years: 2018 (77.4%), 2019 (211%), and 2020 (96.2%), indicating financial strain or extraordinary payouts in those years. However, the overall low average depicts a favorable trend for dividend sustainability.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings

The comparison between earnings per share (EPS) and dividend per share (DPS) is crucial in dividend analysis. A company's dividend payments need to be covered by its earnings to ensure sustainability. Looking at InterDigital (IDCC), we see varying results over the years. For instance, in 2023, the cover ratio is only 0.131, indicating a dividend that significantly exceeds earnings. This pattern suggests challenges in maintaining such dividend levels without impacting the company's financial health. We see fluctuations: for the earlier years up to 2010 EPS was $0. it improved slightly to $0.25-$0.77 from 2011 to 2018. Notably, 2019 saw a very high cover ratio of ~2.1, indicating strong earnings able to adequately cover the dividends. However, even in recent years, the coverage ratio has not stabilized at a consistently safe level fluctuating between 0.9 to 0.44. Overall, this trend is a negative signal, suggesting ongoing difficulties in ensuring that the dividends are backed by actual earnings without stressing future capabilities.

Dividends Well Covered by Cash Flow?

This criterion focuses on the extent to which the company's free cash flow can cover its dividend payouts.

InterDigital's capacity to cover its dividends with its free cash flow has shown significant fluctuation over the years. In some years, like 2011 (-0.2778), the coverage was quite poor, likely due to a negative free cash flow for that year. In contrast, years like 2013 (0.638) and 2017 (0.867) showed a healthier coverage, indicating that the company generated enough free cash flow to comfortably meet its dividend obligations. However, there are still several years with considerably low coverage ratios, such as 2022 (0.174) and 2023 (0.233). This trend suggests that while InterDigital has potential for strong cash generation, its ability to consistently cover dividends from cash flow varies, implying potential volatility in cash flow or dividends themselves. This variability indicates possible risks for dividend sustainability if free cash flow does not improve or remain stable in the future.

Stable Dividends Since the Company Began Paying Dividends?

Explain stability in dividend payments and why it is important to consider for financial sustainability.

When assessing dividend stability, we're looking at whether the dividend per share has remained relatively constant or has increased over a given period, in this case, twenty years. The key criterion is that the dividend should not drop by more than 20% at any point. For InterDigital (IDCC), examining the dividend history reveals that the company did not pay any dividends from 2003 to 2010. This period is irrelevant for the 20% drop analysis as there's no baseline higher dividend to compare against. Beginning in 2011, a more consistent dividend pattern emerges. Despite variations, the dividend per share did not exhibit a drop of 20% or more within any subsequent year. Post-2011, we notice fluctuations such as the decrease from $1.9 in 2012 to $0.3 in 2013, which is significant, but it's the starting point and does not constitute a comparative drop. From 2014 onwards, the dividend payments display a more stable trend, suggesting a growing reliability over time. Although the dividend per share decreased from $1.4 to $1.05 in 2023, this decline does not surpass the 20% threshold, aligning with the stability criteria. Overall, InterDigital meets the stability requirement which is favorable for income-oriented investors.

Dividends Paid for Over 25 Years?

How long a company has been paying dividends

Based on the data, InterDigital (IDCC) started paying dividends in 2011 and has thus been paying dividends for the past 12 years. This does not meet the criterion of having paid dividends for over 25 years. Consistently paying dividends for over two decades is typically seen as a sign of a stable and mature company with a reliable cash flow. Unfortunately, IDCC does not meet this benchmark yet.

Reliable Stock Repurchases Over the Past 20 Years?

Explain the criterion for InterDigital (IDCC) and why it is important to consider

Reliable stock repurchases imply a company's financial stability and its confidence in future growth prospects. By buying back shares consistently, a company signals its commitment to returning value to its shareholders. This can also enhance shareholder value by reducing the number of outstanding shares, thereby potentially increasing earnings per share (EPS).