Last update on 2024-06-27

Mid-America Apartment Communities (MAA) - Dividend Analysis (Final Score: 3/8)

Analyze the dividend performance and stability of Mid-America Apartment Communities (MAA) using an 8-criteria scoring system.

Short Analysis - Dividend Score: 3

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

In our analysis of Mid-America Apartment Communities (MAA) with an 8-criteria scoring system, they scored a 3 out of 8, indicating some strengths and several concerns in their dividend policy. MAA’s dividend yield of 4.1648% is higher than the industry average and should be attractive to income-focused investors. However, MAA has not maintained a consistent dividend growth rate above 5% and has a high payout ratio of 169.16% over 20 years, suggesting potential financial stress. Despite MAA consistently covering dividends with earnings and cash flows better in recent years, their historical data shows inconsistencies and occasional undercoverage. MAA has a good history of paying and increasing dividends since 1998, although not always stable. There is a lack of reliable stock repurchases over the past 20 years, indicating a potential preference for other growth strategies.

Insights for Value Investors Seeking Stable Income

Overall, MAA shows some strengths, such as a high dividend yield, long history of dividend payments, and gradual improvement in covering dividends with cash flow. However, the inconsistent dividend growth rate, high payout ratio, and lack of stock repurchases raise concerns. As an investor, it might be worthwhile to investigate further, focusing on the company's financial strategies and how it plans to sustain its dividend policy over the long term.

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 shows how much a company pays out in dividends each year relative to its stock price. It is important as it provides investors with an idea of the income they can earn from their investments in a company’s shares.

Mid-America Apartment Communities (MAA) currently boasts a dividend yield of 4.1648%, which is higher than the industry average of 3.56%. Historically, MAA's dividend yield has fluctuated significantly, beginning at 6.9684% in 2003 and oscillating between a low of 2.25% in 2021 and highs that frequently exceeded the industry average except in market downturns or economic instability. This upward trend in 2023, aligning yet again above the industry benchmark, signifies a solid recovery and suggests more attractive returns for investors. Given MAA’s rising dividend payments per share over recent years, from $2.34 in 2003 to $5.6 in 2023, the trend is positive. Investors may see the higher yield as a sign of good income potential, especially when viewed against the closing stock prices and MAA's strategy to increase shareholder value consistently over time.

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

The Dividend Growth Rate measures the annualized percentage rate of growth in a company's dividend payments over a certain period of time. A growth rate higher than 5% over the last 20 years indicates robust and consistent dividend increases.

The fluctuating dividendPerShareRatio values for MAA over the last 20 years show inconsistent dividend policy, with years of zero and negative ratios (e.g., 2014: -15.6164; 2021: -9.4334). Despite the high values in certain years (e.g., 2013: 31.295; 2021: 29.0625), the inconsistency and negative values disrupt consistent growth. Given the Average Dividend Ratio of 4.737, MAA doesn’t achieve a dividend growth rate higher than 5% consistently, indicating a bad trend for long-term dividend growth stability.

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

The average payout ratio over the last two decades for Mid-America Apartment Communities (MAA) needs to be lower than 65%. This measure is crucial as it indicates the proportion of earnings paid out as dividends to shareholders. A lower ratio typically suggests greater financial flexibility and sustainability of dividend payments.

Analyzing the data provided, Mid-America Apartment Communities (MAA) has an average payout ratio of 169.16% over the last 20 years. This is significantly higher than the desired threshold of 65%. Payout ratios consistently above 100% for most of the given years except for 2015, 2016, 2017, 2021, and 2022 signal potential financial stress, as the company is paying out more in dividends than it earns. While certain businesses, especially REITs, are required to distribute a significant portion of their earnings, an exceedingly high payout ratio hints at over-leveraging and might not be sustainable in the long run. Therefore, this trend is disadvantageous concerning the criterion and raises concerns about the long-term sustainability of its dividend policies.

Dividends Well Covered by Earnings?

Dividends are well covered by earnings.

Examining Mid-America Apartment Communities' dividend coverage from 2003 to 2023, the EPS has fluctuated significantly, especially spiking in 2012 with $2.4506, 2015 with $4.4201, and 2021 with $4.6531. Meanwhile, the dividends have exhibited a more stable and gradually increasing trend. The coverage ratio (EPS/Dividend) mostly hovers around 1.2-2.6, indicating sufficient coverage, with some years like 2015 showing concerning dips below 1, suggesting payout exceeded earnings. This trend demonstrates relative stability and adequate earnings to support dividends generally, though occasional years of undercoverage suggest the need for investors to maintain a vigilant outlook. Overall, MAA portrays a relatively solid ability to cover dividends with earnings.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow reflect a company's ability to generate enough free cash flow to pay its dividends. This is crucial because it demonstrates financial health and sustainability of the dividend payments.

From 2003 to 2023, Mid-America Apartment Communities (MAA) showed varied performance in covering dividends with free cash flow. Early years showed poor coverage: -0.097 (2003), -0.670 (2004), -0.185 (2005), -0.047 (2006), while recent years showed strong coverage: 0.923 (2019), 0.770 (2020), 1.236 (2021), 0.921 (2022), and 1.096 (2023). In 2007, the dramatic -23.032 ratio indicates an anomalous year, possibly due to extraordinary expenses or poor cash flow. From 2012 onwards, the trend turns positive, consistently covering over 60% of dividends in the worst to fully covering and more in the best years. This trend suggests MAA has significantly stabilized and strengthened its cash flow generation relative to its dividend payments, positively impacting the sustainability of its dividends.

Stable Dividends Since the Company Began Paying Dividends?

Dividend stability over a 20-year period reflects the company's ability to generate steady cash flows and its commitment to returning value to shareholders.

Analyzing the provided data, Mid-America Apartment Communities (MAA) shows a strong history of maintaining and slightly increasing their dividend payments annually. However, the drop in dividend per share between 2014 and 2015, from $3.65 to $3.08, represents a decrease greater than 20%. This break in consistent dividend growth could be viewed negatively by income-seeking investors as it may indicate periods of financial instability or strategic realignment. Nonetheless, the company has recovered and even achieved significant increases in dividends in subsequent years (e.g., 2021: $5.1625).

Dividends Paid for Over 25 Years?

Examining whether a company has paid dividends consistently for over 25 years is important as it reflects the stability and reliability of the company's earnings and financial health. Long-term dividend payment is often a sign of a mature and financially stable company.

Mid-America Apartment Communities (MAA) has a track record of paying dividends for over 25 years, as demonstrated by the data ranging from 1998 to 2023. The company has shown a consistent and gradually increasing dividend per share over these years. Starting from $2.20 in 1998 to $5.60 by 2023, MAA’s increasing payout indicates a robust financial position and a commitment to returning value to shareholders. This long-term trend is exceptionally positive and demonstrates the stability and reliability of MAA’s earnings. Overall, this trend can be regarded as very strong and favorable to investors.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases indicate a company's strategy to return value to shareholders and can signal management's confidence in the firm’s financial health.

Over the past two decades, Mid-America Apartment Communities (MAA) shows an inclination towards increasing its number of shares rather than repurchasing them. With the exception of the single repurchase instance in 2020, the data reveal a significant upward trajectory in the share count, which ascended from 18,374,000 in 2003 to 116,521,000 in 2023. This translates to an average increase of 10.82% in share count over 20 years. Normally, consistent share repurchases are a positive indicator, as they often suggest that the company is generating sufficient free cash flow and is prioritizing shareholder returns. However, MAA's lack of consistent repurchases may imply that the firm is allocating capital towards other growth initiatives or investments.