Last update on 2024-06-27

Monro (MNRO) - Dividend Analysis (Final Score: 5/8)

Evaluate the performance and stability of Monro's (MNRO) dividend policy in our comprehensive analysis using an 8-criteria scoring system. Final Score: 5/8.

Short Analysis - Dividend Score: 5

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

Monro (MNRO) scored 5 out of 8 based on an 8-criteria analysis of its dividend performance and stability. Here's how the company fared for each criterion: 1. **Dividend Yield**: MNRO's 3.8173% yield is higher than the industry average of 2.23%, which is positive. 2. **Dividend Growth Rate**: Over the last 20 years, MNRO showed fluctuating growth with no consistent rate above 5%, which can be a concern for investors seeking steady growth. 3. **Payout Ratio**: With a 20-year average payout ratio of 33.53%, the company maintains sustainable dividends. However, recent jumps to 90% are worrisome. 4. **Earnings Coverage**: Generally good coverage, but recent fluctuations could pose a risk. 5. **Cash Flow Coverage**: Although overall improving, the cash flow coverage of dividends has been conservative. For 2023, 20.68% of dividends were covered by cash flow. 6. **Stable Dividends**: Dividends have been generally stable since initiation in 2005, though not as long-standing as some investors might prefer. 7. **History of Payments**: Only an 18-year history of dividend payments, falling short of the 25 years ideal. 8. **Stock Repurchases**: Inconsistent over the years, didn't provide strong ongoing support to shareholders.

Insights for Value Investors Seeking Stable Income

Monro (MNRO) shows strengths in having a high dividend yield and a generally sustainable payout ratio, making it an attractive option for income-focused investors. However, with inconsistent growth rates, recent high payout ratios, fluctuating earnings coverage, and a lack of a long-term history in dividend payments, caution is advised. Overall, MNRO may be worth considering for near-term income, but investors should remain vigilant about its long-term stability and growth capabilities.

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 comparison against industry averages

Monro (MNRO) boasts a current dividend yield of 3.8173%, surpassing the industry average of 2.23%. This indicates that Monro provides higher income returns to its investors compared to its industry peers. This trend is positive, demonstrating Monro's superior dividend performance. The upward trend in dividends also suggests robust financial health, making Monro a promising investment for income-focused investors.

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

Examining the Dividend Growth Rate over the last 20 years is crucial for assessing the stability and reliability of Monro's (MNRO) dividend policy. A growth rate higher than 5% signifies a robust and expanding business with potentially increasing returns for shareholders.

Looking at Monro's dividend per share ratio from 2003 to 2023, we observe significant fluctuations. Key values include a peak of 139.964 in 2006 and troughs like -32.6531 in 2013, with neither uptrend nor consistent growth exceeding 5%. Furthermore, the average dividend ratio of 20.07% over 20 years indicates volatility, not consistent periodic growth. Monro's dividend cannot be deemed reliably high-growth, illustrating challenges in maintaining steady long-term dividend growth. This trend is suboptimal for investors seeking a stable, high-growth dividend stock.

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

Average payout ratio indicates the percentage of earnings paid to shareholders in the form of dividends. A lower ratio is typically viewed as more sustainable.

The average payout ratio for Monro (MNRO) over the last 20 years is 33.53%. This is significantly lower than the 65% threshold, suggesting that the company has been conservative in its dividend payouts. This is generally a positive trend, as it indicates that Monro has a cushion to cover dividends during less profitable times. Nonetheless, it's worth noting the sharp increase in payout ratio to over 90% in recent years (2021 and 2023), which could hint at potential sustainability issues if this trend persists.

Dividends Well Covered by Earnings?

Examining whether dividends are well covered by earnings involves comparing the dividend per share to the earnings per share. Earnings should ideally cover dividends comfortably to ensure financial health.

The data on Monro (MNRO) indicates a general trend wherein dividends are well-covered by earnings, though there are periods of fluctuation. In early years like 2003, dividends were non-existent. This changed in 2006 with earning coverage of 0.159. By 2019, it saw a reasonable ratio of earnings over dividends (0.363). However, during 2021, the coverage ratio surged to 0.951, suggesting a strain on earnings to cover dividends. Improvement occurred in 2022 with a better ratio of 0.598. Overall, Monro has historically shown reasonable to good earning coverages for dividends, but recent years indicate some volatility and potential risk.

Dividends Well Covered by Cash Flow?

This criterion examines how well a company's dividend payments are covered by its free cash flow. If a company's dividends are well covered by its free cash flow, it indicates financial stability and the ability to sustain or grow dividend payments without compromising other business operations.

Firstly, examining Monro's (MNRO) free cash flow over the past two decades shows a generally increasing trend from $12.57 million in 2003 to $176.03 million in 2023. Free cash flow is a critical measure because it indicates the cash generated after accounting for capital expenditures, which can be used for dividend payments, debt reduction, and other investments. When evaluating the dividend payout amount, it is evident that Monro has been increasingly returning cash to its shareholders. From barely any payout in the early 2000s to a payout of $36.4 million in 2023, Monro demonstrates a significant commitment to its dividend policy. The metric 'Dividend covered by Cashflow' provides a particularly telling insight. A percentage that shows the proportion of dividends covered by free cash flow: -In 2006, dividend coverage was only around 10.57%, suggesting potential vulnerabilities in maintaining dividend payments. -Between 2007 and 2020, coverage improved, though it fluctuated, ranging mostly between 18% and 45%. During this period, the company's ability to pay dividends out of free cash flow became more stable and conservative. -In 2023, around 20.68% of dividends are covered by free cash flow. This indicates a modest buffer and leeway in the policy, providing room to maneuver if earnings temporarily drop. Overall, while the trend is mostly positive, consistently maintaining a dividend coverage ratio under 50% could be seen as somewhat conservative but also prudent, suggesting Monro is safeguarding against future uncertainties. Continuing efforts to increase free cash flow would further enhance the stability of dividend payments.

Stable Dividends Since the Company Began Paying Dividends?

Importance of stable dividends over a long period (e.g., 20 years)

Stable dividends over a long period are crucial as they provide a reliable income stream for investors, especially those relying on dividends for income in retirement. Inconsistency in dividend payments, such as a drop greater than 20%, can signal potential financial instability or a company’s inability to maintain profitability.

Dividends Paid for Over 25 Years?

Whether a company has paid dividends consistently for over 25 years. Consistent dividend payments over a long period are indicative of a company's stability, commitment to returning value to shareholders, and financial health. It also demonstrates the company’s confidence in its ongoing profitability, making it an appealing feature for long-term investors.

The data from 1998 to 2023 shows that Monro (MNRO) didn’t start paying dividends until 2005. Over these years, the dividend per share increased consistently, but there are some variations. From an initial dividend of 0.0444 in 2005, the company increased its dividend per share to 1.12 in 2023. However, it's important to note that as of 2023, Monro has only a history of paying dividends for 18 years, not the target 25 years mentioned in the criterion. The trend overall is positive, with dividends per share growth indicating increasing shareholder returns. Such increments imply solid financial performance. However, the company falls short by 7 years in meeting the 25-year benchmark for continuous dividend payments, which could be a deterrent for some long-term, income-focused investors looking specifically for that criterion. Therefore, while the trend is good, Monro does not entirely meet the criterion of having paid dividends for more than 25 years.

Reliable Stock Repurchases Over the Past 20 Years?

Explain the criterion for Monro (MNRO) and why it is important to consider

Monro's shares outstanding fluctuated over the past 20 years. While there were significant repurchases in 2008, 2009, 2017, 2020, and 2023, these actions were not consistent. The number of shares decreased from 34,317,000 in 2007 to 32,144,000 in 2023, an average annual reduction of 0.1059% which is relatively small. Inconsistent stock repurchases may indicate occasional surplus cash utilizations without a steady commitment. Investors generally prefer regular buybacks as they signal confidence in the firm's future and help boost EPS. Monro's fluctuating approach might be seen as less favorable.