Last update on 2024-06-27

KeyCorp (KEY) - Dividend Analysis (Final Score: 6/8)

In-depth dividend analysis of KeyCorp (KEY) using an 8-criteria scoring system to evaluate the performance and stability of its dividend policy. Final score: 6/8.

Short Analysis - Dividend Score: 6

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

KeyCorp's dividend policy has been assessed using an 8-criteria scoring system. Here's a quick rundown: 1. **Dividend Yield**: KeyCorp’s dividend yield of 5.6944% is higher than the industry average of 2.76%, which is good for income-focused portfolios, but be cautious about factors influencing this yield. 2. **Dividend Growth Rate**: The average growth rate for KeyCorp is above 5%, indicating a positive long-term trajectory, but there have been significant dips in certain years suggesting volatility. 3. **Payout Ratio**: Average payout ratio is 33.479%, well below the 65% threshold, indicating a sustainable approach to dividend payments. 4. **Dividends Covered by Earnings/Cash Flow**: Coverage by cash flow has improved but has been unstable in the past, meaning KeyCorp has had issues covering dividends in some years. 5. & 6. **Stable Dividends and Long Payment History**: The stability of dividends has been questionable, with significant drops during economic downturns, but KeyCorp has paid dividends for a long period. 7. **Stock Repurchases**: Mixed trends in stock repurchases with some years of significant buybacks recently. Overall, KeyCorp presents both strengths in yields and sustainability potential but also weaknesses in stability and growth consistency.

Insights for Value Investors Seeking Stable Income

Given the insights from the analysis, KeyCorp (KEY) might be a favorable choice for income-focused investors due to its high yield and historically sustainable payout ratio. However, the volatility in dividend growth and the occasional instability in coverage and stock performance suggest it may not be suitable for conservative, risk-averse investors. It may be worth considering if you can handle some fluctuations and are looking for potentially higher income returns.

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 represents the ratio of a company's annual dividend compared to its share price. Higher yields can indicate better investment income potential.

Over the past 20 years, KeyCorp (KEY) has generally had a higher dividend yield than the industry average. As of 2023, KeyCorp’s dividend yield is 5.6944%, significantly surpassing the current industry average of 2.76%. This high yield outperformance can be indicative of attractive income potential for investors, suggesting that KEY is a good choice for income-focused portfolios. However, it's crucial to assess sustainability; in 2008, for example, yields spiked dramatically during economic downturns, likely due to a collapsing stock price. The high yields in 2019 at 4.5094% and 2020 at 3.2425% similarly highlight stress periods where stock prices generally fell, raising yields. Evaluating the high dividend yield in the context of stable dividend distributions and stock performance, KeyCorp seems promising, but one must be cautious about the economic factors influencing the higher yield.

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

The Dividend Growth Rate is an important parameter as it indicates the rate at which a company's dividend payments have increased over a specified period, usually on an annual basis. A consistent and high growth rate often suggests strong financial health and stable profitability. Generally, a growth rate exceeding 5% is considered favourable, as it signifies the company's ability to sustainably grow its dividend payouts.

An extensive look at the Dividend Ratio values from 2003 to 2023 reveals a mixed story for KeyCorp (KEY). Although there were years of high growth such as in 2011 (150%), 2010 (80%), and 2015 (76.7442%), the negative values in several years, particularly during 2008 (-31.4384%) and 2009 (-90.7093%), indicate instability. The average Dividend Ratio stands at 12.4506%, bodeing well when considered in its entirety. However, massive drops in certain years suggest volatility. This trend may raise concerns despite the average growth being above the 5% mark. Hence, while there's a long-term upward trajectory, the frequent dips signal caution for risk-averse investors.

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

Evaluating if the average payout ratio is lower than 65% over 20 years is crucial. It helps signify if the company can sustain paying dividends while retaining enough earnings for growth.

The average payout ratio for KeyCorp (KEY) over the past 20 years stands at 33.479%, significantly lower than the 65% threshold. This result indicates a prudent approach towards dividend distribution. By allocating a smaller percentage of its earnings to dividends, KeyCorp ensures it has sufficient retained earnings to invest in growth and manage unexpected financial challenges. Notably, during tough years like 2008 and 2009, the payout ratio went negative, which might result from either net loss situations or dividend reductions. However, a noteworthy jump to 78.6269% in 2023 suggests an anomaly which might require further scrutiny. Overall, maintaining an average payout ratio well below 65% is a strong positive sign for sustainability.

Dividends Well Covered by Earnings?

Explanation of why dividends being well covered by earnings is important

Evaluation of how KeyCorp's earnings per share cover its dividends over the specified years

Dividends Well Covered by Cash Flow?

Free Cash Flow (FCF) is the cash a company generates after accounting for cash outflows to support operations and maintain its capital assets. It is a critical indicator of a company's ability to pay dividends. FCF must be sufficient to not only cover dividend payments but also leave room for reinvestment and potentially pay down debt. This ensures the sustainability of dividends and financial flexibility.

From the given data, we can calculate the Dividend Coverage Ratio by dividing Free Cash Flow by Dividend Payout. The results show a fluctuating trend over the years. For instance, the coverage was significantly low, even negative, in years like 2007 and 2008 due to substantial FCF deficit. Meanwhile, recent years evidenced better coverage: In 2021, the ratio was approximately 0.757, which signifies more than adequate coverage, whereas in 2022 the ratio was 0.196, reflecting a weaker but still somewhat manageable coverage. Overall, while intermittent weak coverage years exist, the trend shows significant improvement from the turbulent periods. This volatility suggests that investors should remain cautious but also cognizant of the recent stability in cash flows and dividend payouts.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments, where the dividend per share did not drop by more than 20% over the past two decades, is of utmost importance for income-seeking investors.

From 2003 to 2023, KeyCorp's dividends per share have experienced significant fluctuations. The data shows a dramatic drop from $1.46 in 2007 to $1.001 in 2008, followed by an even more substantial decrease to $0.093 in 2009. This is already a more than 90% decrease, which is far from the stability that conservative, income-seeking investors prioritize. Although KeyCorp has managed to gradually rebuild its dividend levels over the years, achieving $0.82 per share in 2023, it still hasn’t returned to pre-crisis levels of the early 2000s, let alone demonstrated stability.

Dividends Paid for Over 25 Years?

Explain the criterion for KeyCorp (KEY) and why it is important to consider

Dividends stability is crucial when evaluating a stock for long-term investment. Companies that consistently pay dividends for over 25 years demonstrate durability, a strong business model, and shareholder value focus.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases underscore a company's commitment to returning value to shareholders. This moves beyond dividends, indicating a potential undervaluation of shares or an attempt to optimize the capital structure. Observing repurchase trends over significant periods like 20 years offers insights into strategic financial decisions, particularly during varying market conditions.

Over the last two decades, KeyCorp has shown a mixed trend in stock repurchases. In 11 out of the 20 years analyzed, there were significant active buyback years, particularly between 2004-2007 and 2013-2022. Notable increases in share count were seen from 2008 to 2017, suggesting fewer buybacks and possibly issuing new shares or effecting splits. However, post-2018, there appears a consistent repurchase trend coinciding with economic recovery phases. The fluctuating number of shares indicates periods of strategic financial decisions motivated by market conditions. An average repurchase metric of 4.7592% indicates moderate consistency, but the buyback's reliability enhances significantly when focusing on recent years.