Last update on 2024-06-27

Lamb Weston Holdings (LW) - Dividend Analysis (Final Score: 4/8)

Lamb Weston Holdings (LW) dividend analysis reveals performance and stability using an 8-criteria scoring system resulting in a final score of 4/8.

Short Analysis - Dividend Score: 4

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

Lamb Weston Holdings (LW) has been analyzed based on eight criteria to evaluate its dividend policy. Here's a breakdown: 1) Dividend Yield: LW's dividend yield of 1.0362% is lower than the industry average of 1.77%. Despite rising stock prices, the yield hasn't increased significantly. 2) Dividend Growth Rate: The data shows growth with fluctuations over the past decade, but a 20-year evaluation isn't possible due to lack of data. 3) Payout Ratio: Very sustainable at an average of 25.22%, well below the 65% threshold, suggesting a conservative dividend policy. 4) Dividends Covered by Earnings: Generally well-covered but with a notable drop in the coverage ratio in 2023, which needs close monitoring. 5) Dividends Covered by Cash Flow: Improved post-2017, but very high ratios in 2022-2023 highlight potential cash flow stresses. 6) Stability of Dividends: Stable since 2017 with gradual increases but had a violation due to a drop greater than 20%. 7) History of Dividend Payments: Dividends paid consistently since 2017, but not for over 25 years. 8) Stock Repurchases: Reliable repurchase trend indicating strong financial health and efficient capital management.

Insights for Value Investors Seeking Stable Income

Due to LW's lower-than-industry-average dividend yield and lack of long-term dividend payment history, it's not ideal for dividend-focused investors. However, its sustainable payout ratio and gradual dividend growth since 2017 make it a potential candidate for long-term investors who prioritize financial stability over immediate high yields. It's worth monitoring for continued improvement in its cash flow management and dividend coverage.

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 measures the annual dividend income an investor receives from a stock as a percentage of its current price. It provides investors with an idea of how much income they might expect relative to the price they pay.

Lamb Weston Holdings (LW) currently has a dividend yield of 1.0362%, which is lower than the industry average of 1.77%. Evaluating the past 10 years, we see fluctuations where the yield peaked at 1.4831% in 2021. Meanwhile, the industry average has shown minimal volatility and remains between 1.45% and 2.67%. This trend is concerning, particularly for dividend-focused investors, as LW's yield remains consistently below the industry average. Additionally, despite the increasing stock price—rising from $37.85 in 2016 to $108.09 in 2023—dividend yields haven't improved significantly in real terms. It's noteworthy that the dividend per share has increased from $0.752 in 2017 to $1.12 in 2023, which reflects an absolute increase in dividends, but doesn't offset the price appreciation to elevate the yield.

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

The dividend growth rate over a 20-year period gives investors insight into the company's long-term reliability and ability to generate increasing returns.

By examining the dividend ratio values for Lamb Weston Holdings (LW) from 2014 to 2023, we observe significant variability in dividends per share, with pronounced spikes in years like 2019 and 2023. The average dividend ratio stands at 4.20226. However, these calculations only span the last decade. To properly evaluate a 20-year growth rate, we would need additional historical data prior to 2014. Therefore, we cannot definitively say the 20-year growth rate is consistently above 5%. Given the available data, we observe periods of growth but also significant fluctuations, which may not depict a stable growth trajectory over 5% on a 20-year scale.

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

Average Payout Ratio lower than 65% over a long-term period is important because it indicates a sustainable dividend policy, suggesting that earnings are sufficient to cover dividends and also support company's growth and operations.

The average payout ratio for Lamb Weston Holdings (LW) over the last decade, based on the data provided, is 25.22334%. This is significantly lower than the 65% threshold, indicating a very conservative and sustainable dividend policy. The company's ratio only exceeded the 65% mark once in 2022 at 70.9733%, which might suggest a one-time anomaly perhaps due to extraordinary circumstances or unusual earnings within that year. Overall, this trend is very positive, indicating that Lamb Weston maintains a strong balance between rewarding shareholders and retaining earnings for growth and operational efficiency.

Dividends Well Covered by Earnings?

Dividends well-covered by earnings indicate financial stability and the company's capability to sustain its dividend payouts.

Lamb Weston Holdings (LW) has shown a fluctuating trend in its dividends-to-earnings coverage ratio. In 2014, 2015, and 2016, dividends were not issued, hence coverage was zero. From 2017 to 2023, the coverage ratio has varied significantly. For instance, it was as high as 43.30% in 2021, indicating that the majority of earnings were retained for other uses. However, in 2023, there's a noticeable drop to 16.04%, suggesting potential risks in maintaining dividend stability if earnings do not remain robust. The sharp increase in earnings per share (EPS) to 6.98 in 2023 compensates for the relatively smaller dividend increase, keeping the payout ratio low. Overall, while earnings cover dividends reasonably well, the decline in the coverage ratio could signal a need for closer monitoring.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow indicate that the company is generating enough cash to sustain and grow its dividend payouts, reflecting financial stability.

Assessing Lamb Weston Holdings (LW)'s free cash flow against its dividend payout over the years from 2014 to 2023 reveals crucial insights. Ideally, a lower ratio suggests sufficient coverage, while a ratio over 1 indicates potential cash flow strain. Here's the detailed percentage of dividends covered by cash flow across the given years: 2014: 14.3%, 2015: 11.5%, 2016: 11.9%, 2017: 17.2%, 2018: 63.2%, 2019: 32.7%, 2020: 29.9%, 2021: 33.4%, 2022: 107.7%, and 2023: 135.7%. We observe a significant improvement post-2017. Initially, the low percentages (2014-2017) reflect limited coverage, suggesting potential risk of dividend sustainability or the need to restrict dividend growth. From 2018 onwards, coverage improves remarkably (apart from a dip in 2022-2023), ensuring better financial health. However, *the very high ratios in 2022 and 2023 (>1) highlight potential cash flow stresses, indicating that dividends in these two years might have been paid by dipping into reserves or through debt, potentially compromising future financial flexibility. Thus, the trend has been mixed but shows improvement over time, with some recent concerns.*

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments is crucial as it reflects the company's consistent profitability and its commitment to returning value to shareholders.

Looking at Lamb Weston Holdings' dividend per share over the last 10 years, it's clear that the company has maintained a relatively stable and gradually increasing dividend payout since 2017. From a zero dividend in the initial years, the progression started at $0.752 per share and has increased to $1.12 per share by 2023. However, considering the criterion that dividends should not drop by more than 20%, it's concerning that there was a year where the dividend payment was reduced, violating this principle. Despite the overall positive trend, this reduction might raise questions about the consistency of Lamb Weston Holdings' financial policy, especially for income-seeking investors who prioritize stability above all.

Dividends Paid for Over 25 Years?

The criterion assesses if a company has consistently paid dividends for over 25 years.

Based on the given dividend per share data from 2014 to 2023, Lamb Weston Holdings (LW) has not paid dividends for over 25 years, as their dividend payment history began only in 2017. It's crucial for long-term income investors as a consistent history of dividend payments indicates stability and reliability. Despite the recent growth trend in dividends per share, which increased from $0.752 in 2017 to $1.12 in 2023, it's still insufficient to fulfill the 25-year requirement. The positive side is the consistent growth in dividend payouts, reflecting a potentially solid future trajectory, but for those seeking a long history, LW does not satisfy this criterion.

Reliable Stock Repurchases Over the Past 20 Years?

Explain why reliability in stock repurchases is an important criterion for Lamb Weston Holdings (LW).

Reliable stock repurchases for a company like Lamb Weston Holdings (LW) demonstrate management's commitment to returning value to shareholders. The number of shares over the last 20 years shows a decrease in certain years. A negative average repurchase of -0.1432 indicates a general trend towards either buybacks or issuing fewer shares. This trend is beneficial as it signals strong financial health and efficient capital management.