Last update on 2024-06-27

MarketAxess Holdings (MKTX) - Dividend Analysis (Final Score: 5/8)

Analyzing MarketAxess Holdings (MKTX) dividend performance and stability using an 8-criteria scoring system, achieving a final score of 5/8.

Short Analysis - Dividend Score: 5

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

MarketAxess Holdings (MKTX) achieved a score of 5 out of 8 in a dividend analysis based on the following criteria: 1. **Dividend Yield:** MKTX's dividend yield (0.9834%) is lower than the industry average (2.03%). 2. **Dividend Growth Rate:** The average annual growth rate of dividends over the past 20 years is around 26.63%, showing strong growth despite fluctuations. 3. **Payout Ratio:** MKTX has a low average payout ratio of 23.31%, well below the 65% benchmark, indicating sustainability. 4. **Earnings Coverage:** Dividends have been consistently covered by earnings, with a healthy trend of maintaining a payout ratio above 0.3 in recent years. 5. **Cash Flow Coverage:** MKTX has a generally stable cash flow coverage for dividends, but there is room for improvement in this ratio. 6. **Dividend Stability:** Since starting dividends in 2009, MKTX has shown reliable growth in dividend payouts from $0.07 to $2.88 per share. 7. **History of Dividends:** MKTX has paid dividends consistently for the past 13 years but has not met the 25-year benchmark. 8. **Stock Repurchases:** The company has had occasional stock buybacks, indicating financial confidence but are not a major strategy.

Insights for Value Investors Seeking Stable Income

MarketAxess Holdings (MKTX) showcases a robust performance in terms of payout ratios, earnings coverage, and dividend growth. However, its dividend yield is below industry average, and it lacks a long history of dividend payments. Potential investors might find the company appealing for its sustainable and growing dividends but may be cautious due to the lower yield and shorter history. Investors with a long-term perspective seeking growth over high immediate returns may find MKTX to be a worthwhile consideration.

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 annual dividend per share to the stock's price per share and is crucial for assessing how much income a stock will return to an investor.

At 0.9834%, MarketAxess Holdings' (MKTX) dividend yield is significantly lower than the industry average of 2.03%. This trend is concerning as it suggests the company returns a smaller proportion of its profits to shareholders compared to its industry peers. Historically, MarketAxess has had fluctuating dividend yields since it began distributions in 2009, with peaks in 2010 (1.3455%) and 2019 (1.004%), but consistently below the industry average. This could indicate potential challenges in maintaining high shareholder returns. Furthermore, this lower yield might be a deterrent for income-focused investors despite the increasing stock price over the years, from $17.01 in 2004 to $292.85 in 2023.

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

The Dividend Growth Rate measures the annualized percentage growth rate of a company's dividend payments. A growth rate above 5% indicates favorable growth.

Analyzing MarketAxess Holdings' dividend ratio over the past 20 years, we observe that initial years marked 0% indicating no dividends were paid. However, from 2010, dividends have been consistently paid and generally fluctuated around an average of 26.63%, sometimes peaking as high as 300% and falling as low as 2.8571%. This average far exceeds the 5% benchmark criterion, showcasing a strong tendency towards dividend growth. Despite the fluctuations, the substantial average increase implies well-above-average growth, indicating a positive and robust dividend growth trend for MarketAxess Holdings. This trend is beneficial as it underlines the company's commitment to enhancing shareholder value through dividends.

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

Criterion 1.2 examines whether the company's average payout ratio has remained below 65% over the past 20 years, assessing its dividend sustainability.

The payout ratio for MarketAxess Holdings (MKTX) from 2003 to 2023 averages approximately 23.31%, significantly below the 65% threshold. This is a positive indicator for investors, suggesting that the company is not overextending its earnings on dividend payments. Such a conservative payout ratio implies strong potential for dividend sustainability and growth. The consistent management of payout ratios over two decades portrays fiscal prudence and stability, despite occasional fluctuations. This trend is favorable for long-term investors seeking reliability in income.

Dividends Well Covered by Earnings?

Examining whether dividends are covered by earnings is crucial to ensure the company's sustainability and its ability to continue paying dividends without compromising its financial health.

The trend from 2003 to 2023 shows that MarketAxess Holdings (MKTX) has generally maintained dividends well covered by earnings. Specifically, from 2009 onwards, the dividend cover ratios range from approximately 0.16 to 0.42, indicating a prudent approach in maintaining sufficient earnings to cover dividends. The consistent increase in both earnings per share (EPS) and dividend per share (DPS) points towards a sound financial strategy prioritizing shareholder returns while ensuring retained earnings for growth. In recent years, dividend coverage ratios have remained healthy, comfortably above 0.3, reinforcing that even with rising dividends, earnings are sufficient to cover these payments. Thus, this trend signifies a positive outlook regarding MarketAxess Holdings' ability to sustain and potentially grow its dividends without negatively impacting its long-term earnings and financial health.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow signifies the extent to which a company's dividends are supported by its free cash flow. This is a critical measure of dividend sustainability.

In the case of MarketAxess Holdings (MKTX), the historical free cash flow (FCF) and dividend payout amounts offer a detailed picture of the company's capability to cover its dividends with its free cash flow. From a starting FCF of $12.4 million in 2003 growing to $281.3 million by 2023, it indicates a robust and consistently improving cash-generation capacity. Concurrently, dividends have also increased from $2.65 million in 2009 to $109.66 million in 2023, reflecting shareholder-friendly policies. When we examine the 'Dividend covered by Cashflow' ratio, which represents the portion of FCF used to pay dividends, MKTX has shown significant improvement over the years. A value above 1.0 would indicate that FCF is more than sufficient to cover dividends, while below 1.0 but still increasing would also be positive, though less robust. The values began at 0 when no dividends were paid but have fluctuated within a promising range of 0.0725 to 0.8991 through 2012, and since then, they stabilized with a recent 2023 figure at approximately 0.3898. This indicates that while MarketAxess maintains a healthy balance between rewarding shareholders and retaining sufficient cash flow for operations and growth, there is still room for improving this coverage ratio to ensure enhanced dividend sustainability. Overall, the trend is good, displaying both increasing FCF and dividend payouts, but maintaining a careful balance to enhance coverage further would strengthen financial resilience.

Stable Dividends Since the Company Began Paying Dividends?

Explain the criterion for MarketAxess Holdings (MKTX) and why it is important to consider

The criterion of stable dividends over a 20-year period is crucial as it provides income investors with confidence in the reliability of their returns. In the past 20 years, MKTX has shown a substantial increase in their dividend per share from $0.07 in 2009 to $2.88 in 2023. This increase signifies steady and reliable growth, very desirable for long-term investors.

Dividends Paid for Over 25 Years?

The length of time a company has paid dividends is critical as it reflects financial stability and shareholder value.

MarketAxess Holdings (MKTX) has been paying dividends since 2010. Over the past 13 years, the company has shown a consistent increase in dividend payouts, from $0.07 per share to $2.88 per share by 2023. While this trend is positive and demonstrates the company's commitment to returning value to shareholders, it falls short of the 25-year benchmark. Achieving 25 years of uninterrupted dividends requires long-term financial health and strong business fundamentals, which MarketAxess has yet to establish fully. Therefore, although the company exhibits good dividend growth, it has not met this specific 25-year criterion.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases refer to a company's consistent buyback of its own shares, which can be a sign of good financial health and strong cash flow.

MarketAxess Holdings (MKTX) has demonstrated a degree of reliability in stock repurchases over the past 20 years, with significant buybacks occurring in the years 2004, 2006, 2007, 2012, 2015, 2018, 2019, and 2022. The consistency of these buybacks generally speaks to the company's confidence in its own financial stability and future prospects. However, the average repurchase rate of 0.7541, less than 1% per year, suggests that while repurchases do occur, they are not an overly significant part of MarketAxess's financial strategy. This trend is neither distinctly good nor bad, but it is clear that the company does prioritize other uses for its capital over frequent share buybacks.