Last update on 2024-06-27

Iron Mountain (IRM) - Dividend Analysis (Final Score: 2/8)

Analyze the performance and stability of Iron Mountain's (IRM) dividend policy with an 8-criteria scoring system. Final Dividend Score: 2/8.

Short Analysis - Dividend Score: 2

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

The dividend analysis of Iron Mountain (IRM) using an 8-criteria system reveals concerning trends. The company's dividend yield (3.63%) is below the industry average and has been volatile. Over the past 20 years, the dividend growth has been inconsistent, and the average annual payout ratio (155.38%) is excessively high, indicating financial strain. Dividend coverage by both earnings and cash flow shows fluctuations with recent negative trends. While IRM has maintained stable dividends since 2011 and started paying dividends in 2010, it falls short of the 25-years dividend payment criteria. The company’s practice in share repurchases is minimal, focusing more on issuing new shares. Overall, the signals point toward an unstable dividend policy.

Insights for Value Investors Seeking Stable Income

Given the volatility in their dividend yield, high payout ratios, and the poor coverage by earnings and cash flow, Iron Mountain's current dividend policy appears risky. Although they've shown stability in recent years, they do not meet the long-term dividend payment criteria of 25 years. Interested investors need to weigh these risks against any potential growth. For those prioritizing stable and reliable dividend income, it may be worth considering more consistent and less risky stocks.

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.

Iron Mountain (IRM) has a dividend yield of 3.6268%, which is below the industry average of 3.83%. Evaluating the trends over the last 20 years, IRM's dividend yield was notably high in 2012, at 16.52%, but it significantly declined thereafter. From 2018 to 2023, IRM's dividend yield ranged between 3.6268% and 8.3989%, indicating volatility. Meanwhile, the industry average remained relatively stable. This decline and volatility in IRM's dividend yield can be concerning for potential investors who prioritize steady, predictable income from dividends. Additionally, from a competitive standpoint, a dividend yield lower than the industry's average might make IRM less attractive to dividend-focused investors. Therefore, this trend is considered negative, especially when targeting consistent dividend income.

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

Dividend growth rate examines the annual percentage increase in dividends issued by a firm. A growth rate above 5% shows strong financial health.

Over the past 20 years, Iron Mountain's dividend growth has been highly inconsistent, with values ranging from 446.91% to -73.25%. This volatility points to significant fluctuations in their payout policy, reflecting varying financial health. This trend is far from the desired stability and growth, rendering a long-term rate exceeding 5% volatile and unreliable.

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

What does the average payout ratio indicate for a company, particularly when considering its comparison to a threshold like 65%. Why is this specific threshold important?

The average payout ratio for Iron Mountain over the last 20 years is 155.38%. The payout ratio has only been below 65% in one of those years (2011), and the company even had negative payout. The maximum value in the time span reached an astonishing 482.86% in 2012. The analysis shows an overall unsustainable dividend payment pattern, i.e., the company tends to be paying out significantly more than its earnings, on average. Distribution exceeding earnings often indicates financial strain and can be a critical red flag for potential investors looking for stable passive income. Generally, a payout ratio under 65% is considered reasonably safe and sustainable, allowing companies sufficient funds to reinvest in the business or service debt. Iron Mountain's excessive payout ratios suggest the opposite—a risky dividend policy.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings

An important aspect to consider for any dividend-paying stock is whether the company’s earnings are sufficient to cover its dividend payments. The earnings coverage ratio determines the sustainability of the dividends. Generally, a ratio above 1 indicates that a company’s earnings are enough to cover the dividend payments, while a ratio below 1 suggests that the company is paying out more in dividends than it earns, which could be unsustainable in the long term.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow refer to the company's ability to generate enough free cash flow to cover its dividend payments. This is vital to ensure stable and sustainable dividend distributions.

For Iron Mountain (IRM), the trend of dividends covered by cash flow has seen significant fluctuations over the years. Starting from 2003, when dividends were not paid, to 2007 and beyond, the company has had periods where its free cash flow significantly surpassed dividend payouts, especially notable in years like 2012 and 2021, with coverage ratios of 1.95 and 16.42, respectively. However, the past two years (2022 and especially 2023) depict a negative trend with a ratio of -3.19 in 2023, indicating that the company is paying more dividends than it is generating in free cash flow. This negative trend is concerning as it puts pressure on the company's sustainability to maintain dividend payouts without resorting to external financing. Overall, while the company showed strong coverage in earlier years, the recent negative trend could be a red flag for investors seeking stable dividends.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividends ensures that income-seeking investors can rely on a consistent return. A drop of more than 20% indicates volatility, which is undesirable for those dependent on this income.

Reviewing Iron Mountain's dividend payments over the past 20 years, there is a noteworthy period from 2003 to 2008 where dividends were not issued. Starting in 2008, IRM began issuing dividends, and there has been a discernable upward trend, albeit with some initial fluctuations. Importantly, none of the years exhibited a decline of more than 20% in their dividend per share. This constancy, particularly from 2011 to 2023 where dividends have demonstrated positive growth and stability, is favorable. Investors seeking stable and reliable income streams would find IRM's dividend history confidence-inspiring.

Dividends Paid for Over 25 Years?

Consideration of whether a company has paid dividends for over 25 years is crucial. It signifies stability, consistent profitability, and shareholder-friendly policies, making it a reliable investment.

From the given data, Iron Mountain (IRM) has not paid dividends for over 25 years. The company only started distributing dividends to its shareholders from 2010. Despite the relatively recent initiation, there has been a consistent upward trend in dividend payments since that time, reflecting a commitment to returning value to shareholders. This trend is positive, showcasing Iron Mountain's growth and financial health, but it does not meet the criterion of having paid dividends for over 25 years, which can be seen both as a limitation for highly conservative investors and an opportunity for those seeing potential in Iron Mountain's growing shareholder returns.

Reliable Stock Repurchases Over the Past 20 Years?

Evaluation of a company's history of share buybacks can demonstrate commitment to returning value to shareholders, stability in financial policies, and good management practices.

For Iron Mountain (IRM), the past 20 years have shown variable trends in share repurchases, with a noticeable decline only between 2010 and 2012. The shares outstanding have otherwise steadily increased from 195 million in 2003 to about 292 million in 2023. On average, Iron Mountain has repurchased approximately 2.18% of its shares, which is relatively modest. This suggests that the company has mostly followed a strategy of issuing new shares rather than consistently repurchasing them. The lack of consistent repurchasing patterns could mean either reinvesting capital back into the business or possibly leveraging new issuances for strategic initiatives. The trend does not strongly align with typical shareholder return programs seen in other dividend-paying stocks, potentially fewer buybacks but this needs to be assessed within the context of the company’s capital structure, cash flow priorities and overall financial strategy, where perhaps reinvestment or debt repayment is prioritized.