Last update on 2024-06-27

International Paper (IP) - Dividend Analysis (Final Score: 6/8)

Comprehensive dividend analysis of International Paper (IP), evaluating stability, growth, and coverage based on an 8-criteria scoring system. Final Score: 6/8

Short Analysis - Dividend Score: 6

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

The analysis of International Paper's (IP) dividend policy used an 8-criteria scoring system, yielding a score of 6. The findings are as follows: 1. **Dividend Yield**: IP's dividend yield of 5.1231% is above the industry average of 2.77%, suggesting strong dividend returns. 2. **Dividend Growth Rate**: IP does not show a consistent growth rate greater than 5% over the past 20 years. It has experienced high fluctuations and some negative growth periods. 3. **Payout Ratio**: The average payout ratio's importance was recognized, highlighting the sustainability when it's under 65%. 4. **Dividends Covered by Earnings**: EPS reflects IP's profitability, crucial for ensuring dividends are not covered by debt or reserves. 5. **Dividends Covered by Cash Flow**: The dividend coverage ratio has been adequate but not robust, indicating some volatility in recent years but general adequacy. 6. **Stable Dividends**: While recent dividends have grown, past volatility (especially 2009's significant drop) suggests an initially unstable but rebounding trend. 7. **Dividends Paid Over 25 Years**: Demonstrates the company's long-term stability and commitment to shareholders. 8. **Stock Repurchases**: A reliable practice indicating management's confidence in future profitability.

Insights for Value Investors Seeking Stable Income

Based on the analysis, International Paper (IP) offers strong dividend returns above the industry average and has shown a positive rebound in recent years. However, historical fluctuations and occasional negative growth present some risk. Investors should consider this stock if they seek higher-than-average yields and have a higher risk tolerance. The company's long-term commitment and adequate dividend coverage are positive, yet caution is advised due to past instabilities.

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 a company's annual dividend payments divided by its market capitalization. It represents the return on investment from dividends alone.

International Paper (IP) has a dividend yield of 5.1231%, considerably higher than the industry average of 2.77%. Historically, IP's dividend yield fluctuated, peaking at 8.4746% in 2008, likely a result of a plummeting stock price that year. The trend shows resilience as the yield remained robust compared to the industry. This higher than average yield suggests strong dividend returns for investors in IP, which is favorable against industry counterparts. Nevertheless, investors should also consider other fundamentals to affirm the sustainability of these dividends.

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

The Dividend Growth Rate measures the annualized percentage increase in dividends over a specified period of time, which provides insight into the company's historical ability to grow its dividend. A growth rate higher than 5% is often considered healthy and sustainable.

Reviewing the dividend ratios from 2003 to 2023, International Paper (IP) does not exhibit a clear, consistent trend of dividend growth over the years. Specifically, the company experienced several years of negative growth and significant fluctuations in its dividend payouts. For instance, in 2009, the dividend ratio dropped to -67.5015, but soared to 144.2732 in 2011, followed by declines in subsequent years. Given such erratic behaviors rather than a stable upward trend, we can't conclude that the Dividend Growth Rate for IP is higher than 5% annually over the last 20 years. The average dividend ratio of 8.09% also doesn't provide enough context to establish a positive growth trend due to prevailing inconsistencies. Therefore, the trend here is unstable and potentially concerning for investors seeking reliable dividend growth.

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

Explain the criterion for International Paper (IP) and why it is important to consider

The average payout ratio compares the dividends paid to shareholders to the company's net income over a period of time. A payout ratio below 65% is generally considered healthy and sustainable, as it indicates that the company retains ample earnings to reinvest in business operations, buffer against economic downturns, or pay down debt.

Dividends Well Covered by Earnings?

Explain the criterion for International Paper (IP) and why it is important to consider

Earnings per share (EPS) measures the company's profit allocated to each share of common stock, and it indicates the company's profitability. A company should generate enough earnings to comfortably cover its dividend payments, ensuring sustainability. Covering dividends with earnings means that the company is not internally funding dividends by increasing debt or eating into reserves, thereby demonstrating financial health.

Dividends Well Covered by Cash Flow?

Dividend coverage ratio is a critical metric that indicates how comfortably a company can pay dividends to its shareholders out of its free cash flow. A higher ratio suggests better coverage.

Analyzing the data for International Paper (IP), we see fluctuations in the dividend coverage ratio over the past 20 years. Notably, in 2005 and 2006, the ratio was extremely high, at 1.38 and 2.27 respectively, indicating strong coverage. However, 2009 shows a worrying ratio of 0.03, signaling that free cash flow was almost entirely insufficient to cover dividend payouts. In recent years, the ratio has ranged from 0.34 to 0.93, indicating reasonable but not excessively comfortable coverage. This trend shows that while IP has made strides in ensuring dividends are covered by cash flow, there remains some volatility, which could be concerning for long-term investors. Overall, the coverage is generally adequate but not robust, signifying the need for cautious optimism.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends are crucial for income-seeking investors as they ensure a reliable income stream and demonstrate a company's financial stability and shareholder commitment.

International Paper has had varying dividend payments over the past 20 years, with a notable drop in 2009 from $0.9862 to $0.3205 per share, representing a decline of nearly 67.5%. This indicates a significant instability during that period, mainly due to the global financial crisis of 2008-2009, which affected many companies. Since then, the company has shown a continual increase in dividends, with peaks around $2 per share in recent years. This volatility illustrates a mixed trend: while the company has rebounded and shown growth, the initial drop signifies a period of financial uncertainty. Income-seeking investors should weigh the historically lower stability against the recent upward trend.

Dividends Paid for Over 25 Years?

Explain the criterion for International Paper (IP) and why it is important to consider

The dividends paid criterion refers to whether a company has consistently paid dividends to its shareholders for at least 25 years. This is important as it showcases the company's stability, profitability, and its commitment to returning value to shareholders.

Reliable Stock Repurchases Over the Past 20 Years?

Explain the criterion for International Paper (IP) and why it is important to consider

When analyzing dividend stocks, a company’s practice of stock repurchases demonstrates management’s confidence in the business’s future profitability. Repurchasing shares not only creates instant demand for the stock, often driving the price up, but also reduces the number of shares outstanding, potentially increasing the earnings per share (EPS) and enhancing shareholder value.