Last update on 2024-06-27

Infosys (INFY) - Dividend Analysis (Final Score: 7/8)

Comprehensive dividend analysis of Infosys (INFY) scoring 7/8, covering yield, growth rate, payout ratio, and cash flow coverage.

Short Analysis - Dividend Score: 7

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

The dividend analysis of Infosys (INFY) looks at 8 key areas to understand how consistent and reliable its dividend payments are. Infosys has a dividend yield of 2.3341%, which is much higher than the industry average of 1.12%. This is great for investors looking for income. Over the last 20 years, the company’s average annual dividend growth rate has been about 65.05%, easily beating our 5% benchmark. Infosys has also maintained an average payout ratio of 50.86%, which is below the 65% threshold, indicating it can sustain its dividends. Though there were years when dividends exceeded earnings, overall, dividends have been well covered by earnings and cash flow, indicating stability. For over 25 years, Infosys has paid steady dividends, reinforcing trust. Stock repurchase programs have picked up in recent years, showing the company’s commitment to returning wealth to shareholders.

Insights for Value Investors Seeking Stable Income

Infosys (INFY) presents a strong case for investment, particularly for those looking for stable and potentially growing dividend income. Its consistently high dividend yield, impressive growth rate, and sustainable payout ratio underline its reliability. The company’s commitment to returning capital to shareholders through dividends and stock repurchases recently further strengthens its profile as a dependable investment. Given these positives, Infosys is worth considering for income-focused and long-term investors.

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 ratio that shows how much a company pays out in dividends each year relative to its stock price. It's important as it gives investors an idea of the income they can expect from their investment.

Infosys has a dividend yield of 2.3341%, which is significantly higher than the industry average of 1.12%. This indicates that Infosys offers a better return on investment through dividends compared to its peers. Over the past two decades, Infosys' dividend yield has fluctuated but has generally outperformed the industry average, especially in 2014 (8.139%) and 2017 (5.1279%). Given the relatively consistent payout and higher than average yield, this trend is very positive for income-focused investors.

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

Criterion 1.1 assesses whether the Dividend Growth Rate is greater than 5% over the last 20 years, which indicates long-term growth and profitability.

Over the past two decades, Infosys (INFY) has demonstrated a noticeable variability in its dividend growth rate, as evidenced by the substantial fluctuations in its Dividend Per Share Ratio. Key years reflect highs like 2004's 390.7692% and challenging periods including 2003's -92.1297%. Despite the variability, the average dividend growth rate of approximately 65.05% comfortably surpasses the 5% criterion. This signifies that, notwithstanding inconsistency, Infosys has generally performed well in enhancing shareholder value through dividends, pointing to a positive trend in its long-term growth and profitability.

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

The Average Payout Ratio is calculated by taking the average of the Payout Ratios over a specified period of time. It is important to assess whether the payout ratio is below 65% as higher levels can indicate a riskier dividend, signaling that the company might not be reinvesting enough back into the business or may struggle to maintain dividend payments in tough times.

The Average Payout Ratio for Infosys (INFY) over the past 20 years is approximately 50.86%. Given the criterion for a preferred payout ratio to be below 65%, Infosys has performed well. Despite some years where the payout ratio spiked (notably in 2004 and 2014 with ratios of 75.74% and 167.14% respectively), the long-term average remains within acceptable levels, suggesting a balanced approach to dividend distribution and reinvestment in growth avenues. This trend is favorable for income investors as it indicates a sustained, secure dividend payout while maintaining sufficient profits for company operations and growth.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings

Analyzing the Earnings Per Share (EPS) alongside Dividend Per Share (DPS) for Infosys (INFY), we observe a general trend that EPS exceeds DPS, ensuring the dividends are well covered. However, in years like 2004 and 2014, the ratio spiked abnormally to 0.7579 and 1.6713, respectively, possibly indicating dividends exceeding earnings momentarily. This is generally a bad trend as it can imply potential stress on the company’s retained earnings. Nevertheless, with the EPS growth from 0.0458 in 2003 to 0.713 by 2023, offset by a consistent DPS increase to 0.429 in 2023, the overall trend remains positive indicating adequate coverage.

Dividends Well Covered by Cash Flow?

Explain the criterion for Infosys (INFY) and why it is important to consider

Dividends Well Covered by Cash Flow evaluates how comfortably the company can pay dividends out of its free cash flow. It shows the proportion of free cash flow used for dividends. If the ratio is higher than 1, it means more cash is being paid out than coming in, which could signal future liquidity issues. Tracking this criterion is crucial for understanding dividend sustainability and ensuring that the company generates sufficient cash to support ongoing dividend payments.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends imply consistent returns and can be an indicator of a company's reliable financial policy. This is crucial for income investors who rely on dividends as a source of income.

Analyzing the dividend per share for Infosys over the past 20 years, we observe figures that range from 0.0097 in 2003 to 0.429 in 2023. Despite fluctuations, we do not see drops exceeding 20% of the previous year's dividend, ensuring stability for income-focused investors. For instance, between 2007 and 2008, the dividend per share dropped from 0.0386 to 0.0606, a fall which, while sharp, still does not breach the 20% threshold. Such stability indicates that Infosys has maintained a reliable, if varied, distribution of dividends over two decades, reinforcing investor confidence in its fiscal strategies.

Dividends Paid for Over 25 Years?

Dividends paid for over 25 years indicates long-term profitability and commitment to return value to shareholders.

Examining Infosys' dividend payments from 1999 to 2023—spanning 25 years—we observe consistent payments each year. This trend is excellent as it reflects Infosys' steady profitability and dedication to maintaining shareholder returns. For instance, the dividend per share began at $0.0006 in 1999 and steadily grew to $0.429 by 2023. Notably, the dividend has shown resilience and growth even through economic downturns, which positively speaks for Infosys' financial health and corporate governance.

Reliable Stock Repurchases Over the Past 20 Years?

Reliability in stock repurchases indicates a company's stability and its management's commitment to returning wealth to shareholders. It also can have positive effects on earnings per share, allowing the company to distribute profits among fewer shares, often leading to share price appreciation.

Infosys has been relatively inconsistent with its stock repurchase program over the past 20 years. While there were years where the number of shares outstanding increased, a significant pattern of share buy-back emerges from 2018 onward. Specifically, from 2018 to 2023, the number of shares outstanding has shown a consistent decline, from 4.515 billion to 4.181 billion shares. The average repurchase rate over the past two decades being -0.0791 indicates an overall good trend in the most recent years. This consistent repurchase trend over the recent years could suggest improved capital allocation efficiency and a proactive approach to returning wealth to shareholders, fostering investor confidence.