Last update on 2024-06-27

LKQ (LKQ) - Dividend Analysis (Final Score: 6/8)

Explore our in-depth analysis of LKQ's dividend performance. Discover insights on yield, growth rate, payout ratio, and more within an 8-criteria scoring framework.

Short Analysis - Dividend Score: 6

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

The dividend analysis of LKQ (LKQ) evaluates its performance and stability using an 8-criteria scoring system. LKQ scored a 6 out of 8, showcasing a relatively strong dividend policy. LKQ has an attractive dividend yield higher than the industry average, and the dividend has shown a growing trend since its initiation in 2021. The payout ratio is well below 65%, indicating financial health, and the dividends are well covered by earning and cash flow, which shows sustainability. However, LKQ has only been paying dividends since 2021, which doesn’t provide a consistent growth rate over 20 years or a track record of over 25 years. Their stock repurchase strategy also started gaining traction recently, indicating a commitment to returning value to shareholders.

Insights for Value Investors Seeking Stable Income

For investors focused on income and long-term dividends, LKQ shows potential with its growing dividends and strong financial health indicators. Despite the lack of a long-term history in dividends, recent trends are promising. If LKQ maintains its current trajectory, it could be a good addition to a portfolio. However, conservative investors might seek companies with a longer historical dividend record. Keep an eye on LKQ's continued commitment to dividend growth and stock repurchases to make an informed investment decision.

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 the ratio of a company's annual dividend compared to its share price. It shows how much a company pays out in dividends each year relative to its stock price and is a key measure of a company's profitability and price attractiveness.

LKQ's dividend yield of 2.354% is higher than the industry average of 2.23%, indicating a competitive dividend return for investors. Since 2021, LKQ has shown an upward trend in its dividend yield, starting from 0.4165% in 2021 and increasing to 1.9191% in 2022 and further to 2.354% in 2023. This indicates a growing commitment to returning profits to shareholders, which bodes well for income-focused investors. However, the dividend yield must be assessed in the context of the company's historical trends and stock price performance. LKQ's stock has shown relative stability and growth in recent years, with the price closing at $47.79 in 2023, although this is lower than the high of $60.03 in 2021. The upward dividend trajectory suggests positive momentum for the company, provided other financial health indicators remain strong.

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

The Dividend Growth Rate (DGR) measures the annualized percentage rate of growth of a company's dividend. A DGR higher than 5% over the last 20 years is considered strong and indicates robust financial health.

LKQ's (LKQ) dividend payment history shows zero dividends until 2022 when a significant dividend of 310 was paid, followed by a lower 9.7561 in 2023. This unusual pattern does not lend itself to a calculation of a consistent dividend growth rate over the last 20 years. Effectively, LKQ has only started issuing dividends recently, which precludes it from having a historical dividend growth rate. Hence, we cannot deem the DGR higher than 5% in the last 20 years. The trend observed seems inconsistent and warrants a closer examination of the company’s dividend policy and financial strategy to determine its future direction on dividend payments. Moat investors looking for dependable dividend growth might not find this an attractive sign.

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

The average payout ratio measures the proportion of earnings paid out as dividends to shareholders, expressed as a percentage. A ratio lower than 65% generally suggests that the company retains a significant portion of earnings for reinvestment, which can be a strong indicator of financial health and growth potential.

LKQ's average payout ratio over the past 20 years has been exceptionally low at about 3.03%. This indicates that the company has consistently retained the vast majority of its earnings for reinvestment or other corporate purposes. The trend shows that, starting from 2021, LKQ began to pay out dividends, but even so, the payout ratios in 2021 (6.8%), 2022 (24.7%), and 2023 (32.2%) have remained well below the 65% threshold. This is a strong positive indicator, suggesting that LKQ has ample room for potential future dividend increases while maintaining substantial retained earnings, contributing to its long-term growth and financial stability.

Dividends Well Covered by Earnings?

Earnings per share (EPS) compared to dividends per share determines the payout ratio and whether a company can sustain its dividend payouts.

LKQ’s EPS history from 2003 to 2023 depicts a strong upward trend, rising from $0.1 in 2003 to $3.4978 in 2023. However, dividends per share were only initiated in 2021. In the subsequent years, EPS consistently covered the dividends, evidenced by coverage ratios of 0.068 in 2021, 0.247 in 2022, and 0.322 in 2023. Although these ratios are below ideal levels, a positive trend is present, signifying growing EPS and adequately managed dividend initiations, pointing towards prudent financial management. This ongoing trend is good for future dividend sustainability.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow typically means that the company's free cash flow is sufficiently high to cover its dividend payments. This measure is important because it indicates financial stability and sustainability of dividend payments.

Analyzing the data for LKQ (LKQ) from 2003 to 2023, it is clear that the company only started paying dividends in 2018 with a payout of $72,873,000. The free cash flow for LKQ in 2018 was $460,712,000, resulting in a dividend coverage ratio of approximately 15.82%. This ratio has varied over the subsequent years, showing a generally upward trend. For instance, in 2019, the ratio declined to 9.14% when the free cash flow increased to $798,303,000 but the payout remained around $73,000,000. Furthermore, in 2022 and 2023, the coverage ratios increased to 27.64% and 30.26% respectively, as free cash flows settled above $1 billion while dividend payouts rose to $284,000,000 and $302,000,000 accordingly. This trend suggests that while the dividend payouts have been increasing, the free cash flow has also sufficiently increased to not only cover these payouts but do so with a stable margin. Thus, this trend is good and indicates growing financial strength and the potential for future dividend stability or increases.

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.

Examining LKQ's dividend payments over the last 20 years, several points can be observed. LKQ didn't pay dividends for the majority of the 20-year period, with the first dividend issued in 2021. The dividend per share for 2021, 2022, and 2023 were $0.25, $1.025, and $1.125, respectively. There wasn't any year where the dividend payment decreased by more than 20%. This means for the recent periods dividends have not only been stable but increased annually, which is a good trend for income-focused investors. LKQ's commitment to returning cash to shareholders in recent years shows potential but does not meet the 20-year stability criteria due to a lack of dividends before 2021.

Dividends Paid for Over 25 Years?

Examining the historical dividend payments over an extensive period like 25 years is crucial to determine the company's commitment and ability to return capital to shareholders consistently.

Based on the provided data, LKQ (LKQ) started paying dividends in 2021, and the dividends per share have been $0.25 in 2021, $1.025 in 2022, and $1.125 in 2023. This indicates that LKQ has initiated dividend payments recently, and therefore does not have a history of paying dividends for over 25 years. While the increasing dividend per share is a positive sign indicating the company's potential to grow its dividend payments, the short history might not provide enough confidence to investors looking for a long-term dividend-paying track record. Hence, the current trend is good in terms of growth but does not meet the criterion of paying dividends for over 25 years.

Reliable Stock Repurchases Over the Past 20 Years?

Examining stock repurchases over the past 20 years allows investors to understand how committed the company is to returning value to shareholders. Consistent repurchases usually signal sound financial health.

LKQ has shown increased dedication to stock repurchases particularly in the last five years, from 2019 to 2023. The number of shares decreased notably from 310,155,000 in 2018 to 304,640,000 in 2020, and to 267,600,000 in 2023. Earlier years showed a trend of increase in share count, suggesting limited repurchases or even share issuances. The average repurchase rate of 3.319 million shares annually over the last 20 years reflects a long-term strategic approach to managing shareholder value. This trend is positive, indicating that LKQ has recently prioritized repurchases to enhance shareholder returns, although it's essential to observe if this strategy continues and improves over upcoming years.