Last update on 2024-06-27

LSI Industries (LYTS) - Dividend Analysis (Final Score: 4/8)

Discover the detailed dividend analysis of LSI Industries (LYTS), including 8 key performance criteria. Learn about its growth rate, stability, payout ratio, and more.

Short Analysis - Dividend Score: 4

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

LSI Industries (LYTS) scored 4 out of 8 on a criteria-based analysis of its dividend performance and stability. Key metrics evaluated included dividend yield, growth rate, payout ratio, coverage by earnings and cash flow, dividend stability, historical payments, and stock repurchases. The company has a low dividend yield of 0.7102%, below the industry average. Its average annual dividend growth rate over the past 20 years is 4.7148%, just short of the 5% target. Dividend coverage by earnings and cash flow is inconsistent, indicating sporadic struggles in maintaining dividend payments. While LYTS has consistently paid dividends for over 25 years, the payout amounts have been unstable. Furthermore, the company has shown limited and irregular stock repurchase activity, meaning it may not prioritize buybacks or lack excess cash for them.

Insights for Value Investors Seeking Stable Income

Considering the analysis, LSI Industries (LYTS) presents several risks for dividend-focused investors due to its unstable and lower-than-average dividend performance. The inconsistent dividend growth rate, poor coverage by earnings and cash flow, and limited stock repurchases suggest that LYTS may not be the best pick for those seeking reliable income. However, its long history of paying dividends does reflect some commitment to shareholder value, which may appeal to long-term investors willing to tolerate volatility. Therefore, it’s advisable to approach LSI Industries with caution and possibly consider other stocks with more consistent and stable dividend metrics.

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 a financial ratio that measures the annual dividend payment investors receive from a company relative to its stock price. It is an important criterion for assessing the income-generating potential of a stock.

In 2023, LSI Industries (LYTS) has a dividend yield of 0.7102%, which is marginally lower than the industry average of 0.77%. Over the past 20 years, the company has displayed a fluctuating dividend yield that reached its peak in 2008 at 7.278%. The dividend yield trend is indicative of volatile performance. The steady decline from 2020 when the yield was at 2.3364% to 0.7102% in 2023 signals potential challenges in maintaining dividend competitiveness. This decrease to below the industry average may concern investors who prioritize dividend income. The stock's closing price also plays a critical role; although it increased from $6.86 in 2021 to $14.08 in 2023, the lower yield indicates a disconnect due to apparently lower dividend payouts or market revaluation.

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

The Dividend Growth Rate criterion evaluates whether the company's dividend payout to shareholders has increased by an average of at least 5% per year over the last 20 years. This is important as it indicates a company's ability to grow its earnings and return wealth to shareholders consistently. A robust growth rate suggests financial health and shareholder value growth.

By analyzing LSI Industries' (LYTS) dividend growth rate over the past 20 years, we can see that the company has a highly volatile dividend distribution record. The annual Dividend Per Share Ratio has substantial fluctuations, with years of high increments (e.g., 100% in 2011) followed by significant declines (e.g., -60% in 2009). The overall average dividend growth rate of 4.7148% falls short of the 5% benchmark. This average indicates that LSI Industries (LYTS) struggles to maintain consistent dividend growth. The year-over-year volatility in the dividend growth rate is a concern and suggests that the company may not be able to maintain sustained dividend growth in the future. Therefore, the trend in this criterion is not favorable for the company.

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

Explain the criterion for LSI Industries (LYTS) and why it is important to consider

The acceptable payout ratio for a dividend stock is usually below 65%, as it indicates that the company is retaining sufficient earnings for growth while distributing an acceptable portion to shareholders.

Dividends Well Covered by Earnings?

Dividends being well covered by earnings is essential because it indicates that the company generates sufficient profits to distribute dividends. This sustainability is crucial for long-term investors relying on dividend income.

Analyzing the trend from 2003 to 2023, LSI Industries (LYTS) presents inconsistent coverage of dividends by earnings. For 2003, 2007, 2008, 2012, 2014, 2018, and 2019, the dividends per share exceeded earnings, indicating poor coverage. Positive trends are noticeable in 2005, 2016, 2019, 2021, and 2022, where earnings significantly surpassed dividends with coverage ratios above 1, demonstrating a positive trend for those years. However, in years such as 2003, 2008, 2009, and 2019, the coverage ratio fell below 0.67, indicating that earnings were insufficient to cover the dividends, posing a risk to dividend sustainability. This fluctuating pattern highlights the company's challenges in maintaining consistent and adequate earnings to support dividend payments. Overall, while recent years show improvement, the long-term inconsistency remains a concern for dividend reliability.

Dividends Well Covered by Cash Flow?

Dividends Well Covered by Cash Flow refers to the dividends a company pays out compared to its free cash flow. This is important to consider because it determines whether a company can easily cover its dividend payments with the cash it generates from its operations. A ratio above 1 means dividends are well covered.

In the case of LSI Industries (LYTS), the historical data for dividend coverage reveals a fluctuating trend. Over the 21-year period, the coverage ratio was above 1 only once in 2013, when it stood at 6.76. This implies that in that year, the company could easily cover its dividends with the available cash flow. However, in many years, the ratio fell below the 1.0 threshold, indicating that the dividends were not well covered by cash flow. Especially troubling are the years where the ratio dropped into negative territory, specifically in 2011 and 2022, where the company was in a poor position to meet its dividend obligations from its free cash flow. Consistent, positive coverage ratios over 1 would be the ideal scenario, as they signal financial health and a sustainable dividend policy. LSI Industries may need to address these inconsistencies to assure investors of their dividend stability.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments is crucial, especially for income-seeking investors, as it ensures consistent income over time and reflects the company's financial health.

Analyzing LYTS's dividend per share (DPS) over the past 20 years, there are considerable fluctuations, including a notable drop in 2009 from $0.5 to $0.2, a 60% decrease. Additionally, the DSP dropped further to $0.18 in 2013. This inconsistency means investors could not rely on LYTS for stable dividend income over this period, indicating bad performance in this criterion.

Dividends Paid for Over 25 Years?

The consistency of dividends paid over a long period, such as 25 years, is important as it reflects the company’s stability and commitment to returning value to shareholders.

LSI Industries (LYTS) has a record of paying dividends consistently over the past 25 years, which is commendable. However, the dividend per share has seen significant fluctuations over this period. For instance, in 2005, the dividend per share was $0.52, but it dropped to $0.2 in 2010 and has maintained a similar level until experiencing another dip to $0.1 in 2023. Despite these fluctuations, the long-term commitment to paying dividends is a positive trend, but investors should be cautious of the inconsistencies in the dividend amounts, which could reflect underlying financial volatility.

Reliable Stock Repurchases Over the Past 20 Years?

Share repurchases can indicate a company's confidence in its own future performance and is often a signal of shareholder wealth maximization.

Over the last 20 years, LSI Industries (LYTS) has exhibited limited stock repurchase activity. The number of shares outstanding has generally increased, from 20,052,239 in 2003 to 28,127,000 in 2023. The three years identified as having reliable repurchases are 2005, 2008, and 2017. These isolated repurchase years suggest that LSI Industries does not have a consistent buyback program. This lack of regularity in stock repurchases indicates that the company might either be prioritizing other uses of capital, such as reinvestment into the business or may not possess sufficient excess cash for significant buybacks. Therefore, the trend in stock repurchases is not particularly strong or promising.