Last update on 2024-06-27

Moodys Corporation (MCO) - Dividend Analysis (Final Score: 7/8)

In-depth analysis of Moody's Corporation (MCO) dividend policy, scoring 7/8 on stability and performance using an 8-criteria system, from yield to repurchases.

Short Analysis - Dividend Score: 7

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

Moody's Corporation's dividend policy was analyzed using 8 different criteria. The study found: 1. MCO's dividend yield is lower than the industry average, suggesting a focus on capital appreciation rather than income. 2. The dividend growth rate was volatile but averaged above 5%, indicating a general positive trend despite fluctuations. 3. The average payout ratio was significantly below the 65% threshold, showing strong earnings retention for reinvestment. 4. Dividends were well-covered by earnings, indicating sustainable payout potential. 5. Dividends were also well-covered by cash flow, with occasional variations needing further investigation. 6. MCO's dividends have been stable and have not dropped more than 20% over the last 20 years, providing dependable income for shareholders. 7. The company has paid dividends consistently for over 25 years, demonstrating financial stability and commitment to shareholder returns. 8. MCO has reliably repurchased stock over the past 20 years, reinforcing investor confidence and enhancing shareholder value by reducing share count and increasing EPS.

Insights for Value Investors Seeking Stable Income

Overall, Moody's Corporation appears to be a stable and reliable choice for investors, especially those interested in long-term growth and capital appreciation rather than immediate income. Despite lower-than-average dividend yields and occasional volatility in dividend growth, the company shows strong fundamentals with good earnings and cash flow coverage. If you're focusing on long-term capital gains and have a moderate risk tolerance, Moody's Corporation could be worth further consideration. Its robust financial health, steady dividends, and commitment to share buybacks make it a compelling option for growth-oriented investors.

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

Moody's Corporation (MCO) has a current dividend yield of 0.7886%, which is significantly lower than the industry average of 2.13%. Over the past two decades, its dividend yield has shown considerable volatility, peaking at 1.991% in 2008 and dipping to as low as 0.2556% in 2005. Despite periodic rises, Moody's yield has trailed the industry average consistently. This lower yield suggests that the company might focus more on capital appreciation than returning income to shareholders. Additionally, the surge in stock price from $30.28 in 2003 to $390.56 in 2023 supports this notion, implying investors may prioritize capital gains over dividends. assessing the long-term trend, it indicates that Moody's has been adept at delivering share price growth while maintaining modest dividends, which can be attractive to growth-oriented investors.

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

The Dividend Growth Rate indicates how much a company's dividend payments have increased over time. It’s an important metric as it reflects financial health and shareholder returns.

The Dividend Growth Rate for Moody's Corporation (MCO) fluctuated significantly over the last 20 years, showing values like 66.6667% in 2004 and -7.3684% in 2018. Although the average dividend ratio stands at approximately 19.84%, indicating a robust trend, high variability in certain years necessitates deeper analysis. Overall, considering that the average is above the 5% threshold, the trend is positive, but the fluctuations suggest volatility, which investors need to carefully consider.

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

Average Payout Ratio measures the proportion of earnings paid out as dividends to shareholders. It provides insight into a company's dividend policy and sustainability.

The average payout ratio for Moodys Corporation (MCO) over the last 20 years is approximately 24.57%, which is considerably lower than the 65% threshold. This suggests that the company is retaining a significant portion of its earnings to reinvest in its operations, rather than distributing it all to shareholders. Such a trend is generally positive, indicating healthy financial management and potential for future growth, as the company opts for a conservative approach towards dividends while prioritizing long-term stability and strategic investments.

Dividends Well Covered by Earnings?

Explain the criterion for Moodys Corporation (MCO) and why it is important to consider

Earnings per share (EPS) is a critical metric to watch for dividend-paying companies, including Moody's Corporation. A higher EPS provides a cushion and ensures that the company generates enough profits to support its dividend payouts. This is important for investors because it signals financial health and the sustainability of dividend distributions. If dividends are well covered by earnings, it indicates prudent management and augurs well for future dividend stability or growth.

Dividends Well Covered by Cash Flow?

Dividends Well Covered by Cash Flow measures whether the company's free cash flow is adequate to cover its dividend payouts. It indicates the sustainability of dividend payments.

Examining Moody's Corporation's (MCO) data on free cash flow (FCF) and dividend payout from 2003 to 2023, we see a fluctuating trend in the proportion of FCF used to cover dividends. On average, the coverage ratio remains below 0.3, suggesting that the company generates sufficient cash flow to cover dividends comfortably. For instance, in 2020, the dividend coverage ratio is approximately 0.21, indicating strong coverage, which is favorable for dividend sustainability. The ratio spikes to 0.43 in 2022 and falls to zero in 2023 due to the absence of FCF, which needs further investigation. Overall, Moody's appears to have maintained an adequate and improving dividend coverage ratio over time, except for occasional variations.

Stable Dividends Since the Company Began Paying Dividends?

Explain why stable dividends over 20 years are important and why dropping over 20% is bad.

Analyzing Moody's Corporation (MCO) over the past 20 years, we observe a steady growth in dividend per share from $0.09 in 2003 to $3.08 in 2023. At no point did the dividends drop by more than 20%, indicating remarkable stability. This trend is positive for income-seeking investors, ensuring predictable and reliable income streams. The consistent upward trajectory enhances Moody's credibility and financial prudence.

Dividends Paid for Over 25 Years?

The criterion checks whether Moodys Corporation has consistently paid dividends for more than 25 years. A long track record of dividend payments is critical.

According to the provided data, Moodys Corporation (MCO) has consistently paid dividends since 1998, aggregating to over 25 years of uninterrupted dividend payments. This fulfillment of the criterion reflects the company's strong financial health and commitment to returning value to shareholders. The payments also exhibit an upward trend, particularly notable since 2010, increasing from $0.40 to $3.08 in 2023. This positive trend indicates the company’s capability and dedication to increasing shareholder returns over time, reinforcing investor confidence. Such a stable and growing dividend history is a highly favorable sign for potential and existing investors, demonstrating robust management and financial stability.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases over the past 20 years provide an insight into how committed a company is to return value to its shareholders. Consistent repurchasing usually infers confidence from management in the company's future prospects and its financial health.

Moodys Corporation (MCO) has exhibited a reliable pattern of stock repurchases over the past 20 years with significant decreases in shares outstanding observed in numerous years. For instance, the number of total shares was reduced from approximately 304.6 million in 2003 to about 183.2 million in 2023, indicating a substantial buyback of shares. The average share repurchase rate of -2.4754% annually suggests that the company is aggressively buying back shares. This trend demonstrates not only the company's solid financial footing but also a commitment to enhancing shareholder value. A declining trend in share count typically translates into higher earnings per share (EPS) and potentially supports higher dividend payments. Thus, this trend is surely positive for the long-term shareholder value proposition.