Last update on 2024-06-27

Methode Electronics (MEI) - Dividend Analysis (Final Score: 7/8)

Insights into Methode Electronics (MEI) dividend strength, featuring a thorough 8-criteria analysis scoring 7/8. Learn if MEI's dividends can deliver consistent returns.

Short Analysis - Dividend Score: 7

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

Methode Electronics (MEI) scores a 7 out of 8 based on our 8-criteria dividend analysis, indicating a strong performance and dividend policy stability. They offer a high dividend yield of 2.4637%, significantly above the industry average of 0.77%, making it a good income investment. The company has consistently grown dividends at an average of 6.73% per year, exceeding the 5% benchmark. Their average payout ratio of 32.24% over the past 20 years is well below the sustainable threshold of 65%. However, the dividend coverage from free cash flow shows a need for cautious monitoring. Dividends have been stable and growing since 2003, and they've paid them out for over 25 years, reflecting strong financial health. Their stock repurchase strategy is less consistent, yet has shown some emphasis since 2017.

Insights for Value Investors Seeking Stable Income

Overall, Methode Electronics (MEI) demonstrates a solid dividend policy with consistent growth and sustainability. Their performance in key areas like dividend yield, growth rate, and payout ratio are notable strengths. However, pay attention to the less consistent dividend coverage from free cash flow and sporadic stock repurchases. For long-term investors seeking reliable income and dividend growth, MEI seems like a promising option, but it is advised to keep monitoring their cash flow and share repurchase activities. Consider diversifying your portfolio to balance out any potential risks.

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 an important criterion because it provides investors with an indication of how much they will earn in relation to their investment through dividends alone. A higher dividend yield is often seen as more attractive to income-focused investors.

Methode Electronics (MEI) has a dividend yield of 2.4637%, which is notably higher than the industry average of 0.77%. Over the last 20 years, MEI's dividend yield has fluctuated, hitting a peak of 3.4895% in 2012. The current dividend yield, which is the highest since 2012, appears robust and attractive for investors looking for income via dividends. Such a high dividend yield, especially in comparison to the industry average, suggests a potentially good income investment. However, investors should also be cautious and consider the sustainability of these payments, given historical fluctuations.

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

The Dividend Growth Rate measures the annualized percentage rate of growth of a company's dividend payments. It's important to consider because consistent growth in dividends reflects financially stable companies that reward their shareholders progressively and signals confidence in future earning potential.

For Methode Electronics (MEI), the dividend growth rate over the last 20 years demonstrates a fluctuating pattern but averages out to 6.73%, surpassing the 5% benchmark. This trend is positive as it indicates that, on average, the company has been able to increase its dividend payouts by more than 5% annually over the past two decades. Specific years showed significant increases such as 27.27% in 2008 and 61.90% in 2014, although interspersed with some years of negative growth or no growth at all. This pattern denotes volatility yet overall points to a commitment towards returning value to shareholders.

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

The average payout ratio is important as it shows the proportion of earnings paid to shareholders as dividends. A lower ratio is typically seen as sustainable.

For the past 20 years, Methode Electronics (MEI) has had an average payout ratio of 32.24%, which is well below the 65% threshold. This indicates that the company has maintained a conservative and sustainable approach to dividend distributions. The fact that the ratio stayed significantly below the limit suggests that MEI has enough retained earnings to reinvest in growth, which is a positive trend for long-term financial health. The consistently low payout ratio, with a couple of exceptions where it was notably higher (-9.21% in 2009 and 75.74% in 2010), portrays a generally stable dividend policy, adding confidence for investors focusing on dividends.

Dividends Well Covered by Earnings?

Dividends covered by earnings is a crucial measure of a company's ability to sustain its dividend payments. This metric indicates the proportion of earnings paid out as dividends. A higher ratio signifies better dividend coverage, ensuring shareholders that payouts are unlikely to be reduced or suspended.

Over the years, Methode Electronics' earnings per share (EPS) and dividends per share (DPS) data exhibit a fluctuating trend in dividend coverage. The coverage ratio, specifically calculated as EPS divided by DPS, has varied significantly. For instance, in 2009 the coverage was negative at -0.092 indicating no dividend coverage due to negative earnings. In contrast, 2023 shows a more stable coverage ratio of 0.261, up from the previous year's 0.204. However, it's generally below the ideal ratio of 2, raising concerns about its ability to sustain dividend payouts in adverse conditions. This trend suggests moderate dividend sustainability, but price-sensitive investors might view it as risky.

Dividends Well Covered by Cash Flow?

Dividends Well Covered by Cash Flow means that a company should generate enough free cash flow to cover its dividend payments. This is important because it indicates financial stability and sustainability. Even in fluctuating financial periods, a well-covered dividend shows reliable cash management.

Analyzing Methode Electronics' (MEI) ratio of free cash flow to dividend payout over the past 21 years, the coverage has varied significantly. Ideally, companies aim for ratios comfortably above 1, indicating free cash flow sufficiently covers dividend payouts. Here, MEI's ratios frequently fall below 1, occasionally drastically so. For example, from 2011 to 2013, the ratios reached -11.28 and -1.95, indicating insufficient free cash flow, partly corresponding to negative or very low free cash flows in those years. Recent figures, 0.33 in 2022 and 0.22 in 2023, perform slightly better but still demonstrate cautious coverage. Ultimately, this trend could warn of potential risks in maintaining dividend reliability, necessitating improvements in cash generation or re-evaluating payout amounts to ensure future sustainability.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments is crucial for income-seeking investors as it signifies a company's consistent profitability and its ability to return capital to shareholders reliably. Dividends that exhibit low volatility are preferable because they provide predictable income, which is especially important during economic downturns or periods of market volatility.

Analyzing Methode Electronics' (MEI) dividend history over the past 20 years, we find no instance where the dividend per share dropped by 20%. Starting from 2003 at $0.20 per share and gradually increasing to $0.56 per share in 2023, the dividends grew steadily with minor fluctuations. The significant increases, particularly in recent years (2013 onward), point to the company's strong financial health and a shareholder-friendly dividend policy. Overall, this trend is very positive for dividends’ stability, paralleling MEI's commitment to delivering consistent and growing returns to its investors.

Dividends Paid for Over 25 Years?

Explain the criterion for Methode Electronics (MEI) and why it is important to consider

Methode Electronics has paid dividends consistently over the last 25 years, starting with $0.0748 per share in 1998 and increasing to $0.56 per share in 2023. This is important as it demonstrates the company’s commitment to returning value to shareholders. Regular dividends indicate financial health and stability, which can make the stock more attractive to long-term investors. It also suggests reliable cash flow and solid financial practices. This consistency is a positive trend, affirming the company's resilience and ability to generate profits over an extended period.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases involve a company consistently buying back its own shares over a period, enhancing shareholder value.

Over the past 20 years, Methode Electronics (MEI) has reported share repurchase activities in nine specific years: 2004, 2005, 2010, 2013, 2016, 2017, 2020, 2022, and 2023. This occasional buyback indicates a less frequent but targeted approach to shoring up share value. From 2003 to 2023, the number of shares fluctuated but generally showed a mild average decrease rate of 4.73% across the timeline. The most notable reductions happened post-2017, notably in 2022 and continuing into 2023, which hints at a strategic emphasis on buybacks to potentially support share prices or earnings per share in relatively recent periods. Nonetheless, the sporadic nature rather than a reliable buyback plan warrants careful monitoring for future sustainability and signals mixed trends in financial stability.