Last update on 2024-06-27

McKesson (MCK) - Dividend Analysis (Final Score: 6/8)

In-depth analysis of McKesson's (MCK) dividend policy, scoring 6/8 based on an 8-criteria system over the past 20 years.

Short Analysis - Dividend Score: 6

We're running McKesson (MCK) 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 represents the ratio of a company's annual dividend compared to its share price. A higher yield may appear attractive, but it often signifies underlying issues. Conversely, a lower yield indicates strong company valuation. Thus, it offers insights into income generation and market trust.

As of 2023, McKesson's dividend yield stands at 0.5011%, significantly lower than the industry average of 0.98%. Over the last 20 years, McKesson's dividend yield fluctuated but generally trended between 0.4% and 1.3%, except in 2018 when it peaked at 1.3216%. This consistent pattern, despite being lower than industry benchmarks, indicates company focus on growth and reinvestment rather than high dividend payouts. Furthermore, McKesson's stock price closed at $462.98 in 2023, showing remarkable appreciation from $32.16 in 2003. This explains the lower yield since higher stock prices lower the yield percentage even if the dividend amount increases. Over the 20 years, McKesson's dividends per share grew from $0.24 to $2.32, showcasing steady enhancement in shareholder returns.

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

Evaluating the dividend growth rate is crucial as it provides insight into a company's financial health, management's commitment to returning value to shareholders, and sustainability of future dividend payments.

McKesson's Dividend Ratio over the past 20 years showcases a highly variable growth rate with years of no dividends until 2008. However, if we consider the period from 2008 onwards, there are significant growth rates like 75% in 2008 and 37.5% in 2010. The Average Dividend Ratio of 12.38% exceeds the 5% threshold over this period. This indicates a generally positive trend, suggesting that the company prioritizes returning value to shareholders through dividends despite the fluctuation year over year.

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

The payout ratio is the proportion of earnings a company pays to shareholders in the form of dividends. A lower payout ratio, ideally below 65%, is generally preferred as it indicates the company's ability to maintain dividends during economic downturns.

McKesson's average payout ratio over the last 20 years is 75.47%, which is higher than the preferred threshold of 65%. This trend is concerning, as it suggests that McKesson may be paying out dividends at an unsustainable rate, thereby potentially compromising future dividend stability and growth. The excessive payout ratios in 2018 (455.40%) and 2019 (926.99%) skews the average significantly and denote specific years where earnings were likely insufficient to cover dividends, which could negatively impact long-term financial health.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings.

In simplest terms, dividends being well covered by earnings means that the company generates enough profit to distribute dividends to its shareholders without stressing its retained earnings or leveraging its financials. Analysts often use the dividend payout ratio, calculated as Dividend per Share (DPS) divided by Earnings per Share (EPS), to measure this coverage. Typically, a lower ratio indicates that the company retains more earnings for growth, while higher coverage ensures dividend sustainability. The given earnings per share (EPS) and dividends per share (DPS) of McKesson over the years points to inconsistent coverage ratios, manifesting both positive and negative trends at various intervals.

Dividends Well Covered by Cash Flow?

Dividends Well Covered by Cash Flow

The dividend coverage ratio by free cash flow for McKesson has shown some variability over the years. Starting at 0.137 in 2003, it experienced a significant drop reaching its lowest point at 0.028 in 2006, indicating that the dividends were only marginally covered by the cash flow. Post-2006, the ratio demonstrates an inconsistent, albeit improving, trend, staying fairly stable between 0.06 and 0.09. In the latest fiscal year 2023, the coverage stood at approximately 0.063. Interpreting these percentages, McKesson's dividend payouts have generally been well-covered by the free cash flow, with the lowest being covered 2.83% in 2006 and the highest at 15.57% in 2004. Such figures suggest the company maintains a conservative approach, ensuring consistent dividend payments. However, a persistent low coverage ratio below 0.10 might raise caution. Ideally, consistent ratios above 0.20 would provide more reassurance on dividend sustainability. Given that the free cash flow is growing and the payout ratio remains low, this trend can be construed positively, though monitoring for any future deviations is pivotal.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends over the past 20 years indicate a company's strong financial health and its ability to generate consistent cash flows, which is crucial for income-seeking investors.

Over the past 20 years, McKesson (MCK) displayed a continuously increasing dividend per share from $0.24 in 2003 to $2.32 in 2023. This trend demonstrates consistent and stable growth in dividend payouts, which underlines the strength of McKesson's business model and financial strategy. Since the dividends per share did not drop by more than 20% in any year, McKesson meets the criterion of stable dividend payments. This stability is appealing for income-seeking investors as it reflects the company's reliable cash flow and prudent capital management. However, the noted exception (the indicator for a 20% drop) should be further investigated to understand its context and impact.

Dividends Paid for Over 25 Years?

Whether a company has been paying dividends for over 25 years is crucial because it demonstrates a long-term commitment to returning capital to shareholders. It shows confidence in the company's profitability and stability.

In the case of McKesson (MCK), the history of dividends paid from 1998 to 2023 indicates a consistent payout. Over these 25 years, the dividends per share have risen from $0.5 in 1998 to $2.32 in 2023, reflecting a steady increase. This trend signifies a robust commitment to rewarding shareholders and highlights the company's financial health and capability to generate sustained profits over the long term. This criterion is positive for McKesson as it underscores financial stability and investor confidence, making it an attractive option for dividend-focused investors.

Reliable Stock Repurchases Over the Past 20 Years?

Explain the criterion for McKesson (MCK) and why it is important to consider

Over the last 20 years, McKesson has demonstrated a pattern of repurchasing its shares consistently. According to the data, McKesson's number of shares decreased from 298,800,000 in 2003 to 141,100,000 in 2023. A significant number of years saw repurchases, especially concentrated in the last decade. The average repurchase rate is -3.6077. This indicates that, on average, the number of shares has decreased by around 3.61% annually, which is a positive trend for shareholders since reduced share count generally leads to higher earnings per share (EPS).