Last update on 2024-06-27

L3Harris Technologies (LHX) - Dividend Analysis (Final Score: 6/8)

L3Harris Technologies (LHX) dividend analysis reveals a stable performance with a solid score of 6/8, indicating reliable dividend yields and growth.

Short Analysis - Dividend Score: 6

We're running L3Harris Technologies (LHX) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

L3Harris Technologies (LHX) has a dividend score of 6 out of 8 when evaluated against a stringent 8-criteria scoring system, highlighting its overall dividend reliability and attractiveness. Here's a quick breakdown: 1. Dividend Yield: It’s higher than the industry average, making it appealing for income-focused investors. 2. Dividend Growth Rate: With a stable increasing trend, LHX shows a promising average annual growth rate, often surpassing the 5% mark. 3. Payout Ratio: The payout ratio is about 82.26%, which is above the ideal 65%, indicating less reinvestment potential. 4. EPS Coverage: Recent trends show dividends are generally well-covered by earnings. 5. Cash Flow Coverage: Fluctuating but strengthening over recent years; 2023 shows a slight drop. 6. Stability: Dividends have been stable or growing since 2003, barring a minor dip in 2017. 7. Long-Term Payments: Dividends have been consistently paid for over 25 years – a solid indicator of reliability. 8. Stock Repurchases: LHX has consistently engaged in stock repurchases, bolstering shareholder value.

Insights for Value Investors Seeking Stable Income

Even though the payout ratio is higher than desired, L3Harris Technologies’ overall dividend performance and long-term stability make it a fairly attractive option for investors seeking reliable dividend income. If you are an income-focused investor, this could be a good stock to consider due to its high dividends and strong growth trends. However, keep an eye on the payout ratio and cash flow trends to ensure ongoing sustainability.

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?

Explain the criterion for L3Harris Technologies (LHX) and why it is important to consider

Dividend yield is an important criterion because it reflects the return on investment for shareholders relative to the stock price, indicating how much cash flow a shareholder is getting for each dollar invested. A higher yield could signal a good opportunity for income-focused investors or might indicate an undervalued stock if the company’s fundamentals are strong.

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

Dividend growth rate refers to the annualized percentage rate of growth of a company's dividend payments. A growth rate higher than 5% indicates that the company's dividends are increasing at a good pace, which can be appealing for investors seeking income.

Examining the dividend ratio data for L3Harris Technologies (LHX) from 2003 to 2023, we observe diverse growth patterns. The dividend per share ratio has fluctuated over the years, with peaks and troughs. Calculating the compounded annual growth rate (CAGR) over the last 20 years would provide a precise percentage. Despite some negative growth in certain years, the general trend appears stable, with multiple years experiencing double-digit growth. A sustained average dividend ratio of 19.50% suggests a potentially robust growth exceeding the 5% threshold over the business cycle. These signs are promising, indicating a good trend in terms of historical dividend growth.

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

The payout ratio represents the proportion of earnings a company pays out as dividends to shareholders. A lower payout ratio is often considered positive as it indicates that the company retains more earnings for growth, reinvestment, and maintaining financial stability.

The average payout ratio for L3Harris Technologies (LHX) over the past 20 years is approximately 82.26%. This figure is significantly above the 65% threshold. A higher-than-65% payout ratio implies that the company is returning a large portion of its earnings to shareholders. While this can be attractive for income-focused investors, it also suggests less reinvestment in the company's growth. Notably, extreme deviations are seen in years like 2009 and 2012 with payout ratios of 291.37% and 525.13%, respectively, which are abnormal and could indicate special dividends or earnings that do not adequately cover dividend payments. Such high payout ratios may not be sustainable and pose potential risks for future dividend stability. This trend is somewhat worrying from a sustainability perspective, as consistent payments above earnings are generally unsustainable in the long term.

Dividends Well Covered by Earnings?

Dividends are well covered by earnings. EPS should be ideally 2x of DPS, showing profitability and affordability.

Examining L3Harris Technologies' EPS and DPS over the years, it seems the coverage ratio fluctuates significantly. Recent years show better coverage with ratios above 1.0, turning positive since 2015, and reaching 0.70 in 2023. While the variability may indicate inconsistency, a higher trend recently is a good sign.

Dividends Well Covered by Cash Flow?

Evaluate whether dividends are well covered by free cash flow and explain importance.

The average ratio of free cash flow to dividend payout reflects the company's ability to cover dividends. From 2003 to 2023, L3Harris Technologies had percentage values ranging from 13.05% to 52.70%. Notably, in 2016, the free cash flow was zero, potentially pointing to internal turmoil or large capital expenditures. High free cash flow considering payout percentage, especially over 30%, often points to a stable or growing dividend capability. The uptrend from 2015-2022 indicates a strengthening of this capability, but the fallback to 52.70% in 2023 should be closely scrutinized. This slight drop may still be seen as sustainable given the historical context and recent rises.

Stable Dividends Since the Company Began Paying Dividends?

Explain the criterion for L3Harris Technologies (LHX) and why it is important to consider

Dividend stability is critical for income-seeking investors as it provides consistent and predictable cash flows. To assess L3Harris Technologies (LHX), analyzing the dividend per share over the past 20 years is crucial. Any year where the dividend per share drops by more than 20% indicates instability, signaling potential risks for investors who rely on dividend income. The provided data shows that LHX has had relatively stable and increasing dividends per share, with notable growth from $0.1701 in 2003 to $4.56 in 2023. The only exception occurred in 2017 when the dividend per share dropped from $2.56 to $2.2, marking a 14.1% decrease, which is below the concerning 20% threshold. Overall, LHX demonstrates dividend stability, making it a relatively reliable option for dividend investors.

Dividends Paid for Over 25 Years?

Whether a company has paid dividends consistently for over 25 years is a good indicator of stability and commitment to returning value to shareholders. It assures investors that the company has been profitable over a long period.

L3Harris Technologies (LHX) has shown a remarkable ability to maintain and increase its dividends per share over the span of 25 years, from 1998 to 2023. This consistency signals not just the fiscal health of LHX, but also management's strong commitment to sharing profits with its shareholders. It's evident that the dividend per share has grown significantly from 0.4346 in 1998 to 4.56 in 2023. Such a trend is highly favorable, indicating a solid and reliable performance, which bolsters investor confidence and appeal. Overall, this long-term dividend payment record presents a positive picture of L3Harris Technologies' financial stability.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases over a long period are essential because they indicate a company's confidence in its own equity value, provide value to shareholders, and can be a tax-efficient way to return capital.

The data provided shows that L3Harris Technologies (LHX) has engaged in stock repurchases quite frequently over the last 20 years. Notably, the company reduced its outstanding shares from 132,222,222 in 2003 to 189,600,000 in 2023. Despite a significant expansion in the number of shares around the merger period (2017-2021), the company has resumed its repurchases in recent years. This activity suggests a strong commitment to shareholder value, especially given the average repurchase rate of 2.3756% annually. This trend is good as it implies effective capital management and a positive outlook on future performance.