Last update on 2024-06-27

Lam Research (LRCX) - Dividend Analysis (Final Score: 6/8)

Analyze the stability and performance of Lam Research (LRCX) dividends with an 8-criteria scoring system in our comprehensive review. Dividend Score: 6/8.

Short Analysis - Dividend Score: 6

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

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 annual dividend payment to shareholders expressed as a percentage of the stock price.

A dividend yield of 0.9512% for Lam Research (LRCX) is significantly higher than the industry average of 0.34%, which is favorable for investors looking for income-generating stocks. Over the past 20 years, Lam Research's dividend yield has fluctuated considerably, reaching its peak in 2018 at 2.7906%. Despite a varied trend, the current yield still comfortably exceeds the industry average. This suggests a more attractive return for income-focused investors when compared to other companies in the sector. However, it's crucial to consider other financial health metrics alongside yield.

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

The Dividend Growth Rate measures the annualized percentage increase in dividends per share issued by a company over a certain period.

Analyzing the provided data from 2003 to 2023, it’s clear that Lam Research (LRCX) has shown significant dividend growth since initiating dividends in 2015. With values in the subsequent years like 100% in 2015 and a lesser but steady rise in recent years, the average dividend ratio over this period is 16.177%. This growth rate well exceeds the 5% threshold, indicating a strong dividend growth trend. This is a positive sign for investors seeking income growth. High dividend growth often reflects a company's robust financial performance, increased profitability, and commitment to returning capital to shareholders.

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

The payout ratio, which indicates the percentage of earnings paid to shareholders in dividends, is crucial as a lower ratio often signifies a company's capacity to sustain dividends through earnings. Ideally, a ratio under 65% for prolonged periods increases confidence in dividend reliability.

Lam Research's (LRCX) average payout ratio over the last two decades is approximately 11.63%, considerably below the 65% threshold. Prominently, from 2003 to 2013, the payout ratio was 0%, indicating that the company was either reinvesting its profits or did not issue dividends. Starting from 2014, the ratio remained moderate, notably with a peak of 31.5127% in 2020. This consistent low payout ratio suggests that Lam Research has a robust capacity to sustain its dividend payments while retaining ample earnings for reinvestment and growth. Overall, the trend can be observed as positive under this criterion.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings.

To determine whether Lam Research's dividends are well covered by its earnings, we look at the EPS and compare it to the dividend per share. A high coverage ratio suggests that the company generates sufficient profit to comfortably pay dividends to its shareholders. Given the provided data from 2003 to 2023, Lam Research appears to have a relatively consistent EPS increase over the years, notably from 2011 onwards. The analysis of the coverage ratio shows measurable but fluctuating figures: 0.15 in 2014, peaking at 0.3151 in 2020, and then decreasing to around 0.22 in 2023. While this trend fluctuates slightly, the company's continuous profitability underscores its ability to sustain its dividend payouts. This is generally a positive indicator, but the slight decrease in the coverage ratio over recent years should be closely monitored.

Dividends Well Covered by Cash Flow?

The criterion examines how well the dividends are supported by the company's free cash flow. Ideally, a higher coverage ratio signifies financial stability. It prevents over-leveraging and underscores sustainable dividend policies.

First, there's a solidifying trend in free cash flow for Lam Research from 2003 to 2023, overall ascending from $56.98M in 2003 to an impressive $4.67B in 2023. However, some volatile years are noticeable; negative free cash flow of $122.4M in 2009 is particularly concerning. Dividend payouts commenced in 2015. FCF covered dividend over the years stands above danger zones, maintaining ratios between 0.13 and 0.34 post-2015 initiation. This ratio pattern, although only modestly improving, indicates dividends are minimally well-covered, increasing confidence in Lam's ability to sustain dividends. Yet, complemented by recent positive trends, it's good yet room remains for enhancement.

Stable Dividends Since the Company Began Paying Dividends?

Explain the criterion for Lam Research (LRCX) and why it is important to consider

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.

Dividends Paid for Over 25 Years?

Whether a company has paid dividends for over 25 years shows its consistency and reliability in rewarding shareholders.

Looking at the historical data for dividends paid by Lam Research (LRCX) from 1998 to 2023, it is evident that the company did not pay any dividends up until 2014. Their dividend payments began in 2014 with $0.54 per share and have grown consistently each year, reaching $7.45 per share by 2023. While the trend of increasing dividends is very impressive and a positive sign of financial health and commitment to returning value to shareholders, the criterion of paying dividends for over 25 years is not met. This could be viewed negatively by dividend-seeking investors who look for long-standing dividend payments as a mark of stable and mature companies.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable Stock Repurchases Over the Past 20 Years

Stock repurchases are considered a positive sign as they reflect a company’s confidence in its own growth prospects and can enhance shareholder value by reducing the number of shares outstanding. This act often indicates that the company believes its shares are undervalued and that investing in itself offers the best potential returns.