Last update on 2024-06-27

Marathon Petroleum (MPC) - Dividend Analysis (Final Score: 6/8)

Explore Marathon Petroleum (MPC) dividend analysis with an 8-criteria scoring system. Understand dividend yield, growth rate, payout ratio, and coverage metrics.

Short Analysis - Dividend Score: 6

We're running Marathon Petroleum (MPC) 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 is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price.

Marathon Petroleum's (MPC) current dividend yield is 2.0727%, which is lower than the industry average of 2.84%. Over the last 20 years, MPC's dividend yield has seen significant fluctuations. Notably, it peaked at 5.6093% in 2020, coinciding with a period of market turbulence. Currently, the yield has reverted to more stable levels. With a closing stock price rising significantly from $41.36 in 2020 to $148.36 in 2023, the relatively lower dividend yield suggests that price appreciation has outpaced dividend growth. Despite being below the industry average, this trend can be seen as a positive reflection of the company's strong stock price performance.

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

Dividend Growth Rate, calculated over a significant period such as 20 years, is important as it shows the company's commitment to returning value to shareholders consistently increasing dividends. A growth rate higher than 5% is generally considered healthy.

Based on the provided data for Marathon Petroleum (MPC), the average dividend ratio is approximately 21.62%, indicating that when the company has paid dividends, there has been an impressive increase relative to previous payments. However, it's worth noting that there have been years (2008, 2009, 2010, 2011, 2021) where no dividends were paid, disrupting the consistency. The substantial hike in 2012 seems to skew the average significantly. Out of the actively paying years, the dividend growth showcases considerable volatility that might not translate to stable yearly growth. Therefore, while the growth rate is high, its consistency might be a concern. This trend can be viewed as positive in terms of potential returns but problematic for investors seeking stable and predictable income.

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

This criterion examines whether Marathon Petroleum's average payout ratio has remained lower than 65% over the past 20 years. A payout ratio is the percentage of earnings paid to shareholders in dividends, and maintaining a lower ratio typically suggests that the company retains more earnings for growth and stability purposes.

Based on the given data, Marathon Petroleum's average payout ratio over the provided period is 17.37%. This is significantly lower than the 65% threshold, indicating that the company has maintained a conservative approach to dividend payouts. This conservative strategy may be advantageous for several reasons. Firstly, it allows the company to retain more earnings to reinvest in operations, capital expenditures, and potential growth opportunities. Secondly, it enhances the company's ability to absorb financial shocks or downturns without jeopardizing dividend payouts. The payout ratios in certain years, such as 2016 (61.40%) and 2020 (-15.32%), show some volatility, but these are exceptions rather than the norm. Overall, this trend is positive for sustaining long-term growth and financial health.

Dividends Well Covered by Earnings?

Dividends covered by earnings ensure that a company generates sufficient profits to support its dividend payments, reflecting financial stability and a lower probability of cutbacks.

From 2008 to 2023, Marathon Petroleum (MPC) has shown varying degrees of dividend coverage by earnings per share (EPS). The initial years until 2010 showed no dividends, making coverage irrelevant. Starting from 2011, the coverage ratio improved gradually, peaking notably in years like 2017 (0.2268) and 2018 (0.3481). However, the 2020 pandemic year exhibited a negative coverage ratio (-0.1532), an outlier due to significant EPS loss (-15.14). Post-pandemic recovery in 2021 (0.1510) and further strong earnings in 2022 (0.0878) and 2023 (0.1293) indicate a positive trend. While recent coverage ratios are not very high, they reflect resilience and gradual improvement, which is favorable for the dividend's sustainability.

Dividends Well Covered by Cash Flow?

This criterion assesses if Marathon Petroleum's dividends are sufficiently covered by free cash flow. High coverage indicates a sustainable dividend.

Analyzing the period from 2008 to 2023, Marathon Petroleum's free cash flow coverage of dividends shows considerable variation. While early years had insufficient coverage (sub-0.1 ratio), improvements are visible after 2012. The ratio peaked at 0.657 in 2016 but saw declines thereafter. Notably, in 2020, a massive drop to -4.103 due to negative free cash flow suggested extreme cash strain. The recent rebound in 2021 and more stable yet lower figures in 2022 and 2023 demonstrate recovery but weak consistency. Hence, the long-term trend reveals fluctuations, raising concerns about sustaining dividends solely from free cash flow.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends over the past 20 years are crucial for income investors as they indicate the company's ability to generate consistent income over extended periods, enhancing predictability and financial planning.

The dividend per share for Marathon Petroleum (MPC) shows a consistent upward trajectory from 2011, except for the initial years when the dividends were non-existent. Starting at $0.225 in 2011 and rising to $3.075 in 2023, this suggests strong and growing dividend payouts. Despite the apparent stability, there was at least one year where dividends dropped by more than 20%. This drop, while concerning, should be analyzed in the context of current overall growth in dividends. The general trend remains positive, enhancing investor confidence in the company's dividend policy. However, the significant drop signals potential volatility, potentially driven by external economic factors or internal financial decisions.

Dividends Paid for Over 25 Years?

Marathon Petroleum (MPC) has been paying consistent dividends for over 25 years. This criterion is important as it signals a company's long-term stability, shareholder value, and profit-sharing commitment.

Based on the data provided, Marathon Petroleum (MPC) started paying dividends in 2011. Over the years from 2011 to 2023, the company's dividend per share has shown a consistent upward trend, increasing from $0.225 in 2011 to $3.075 in 2023. Moreover, the dividends have been paid regularly without any interruptions, reflecting MPC’s commitment towards rewarding its shareholders. However, it must be noted that as of now, MPC does not meet the criterion of paying dividends for over 25 years, as it has been paying dividends consistently for about 12 to 13 years. Despite not meeting the 25-year mark criterion, the positive dividend growth trajectory conveys a strong financial performance and robust shareholder return strategy, which is encouraging for existing and potential shareholders.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases reflect a company's commitment to returning value to shareholders by reducing outstanding shares, which often boosts share prices and earnings per share (EPS).

Over the past 20 years, Marathon Petroleum (MPC) has shown a significant commitment to stock repurchases. The data indicates that in most years, MPC has reduced its number of outstanding shares reliably, particularly between 2011 and 2023, except notable exceptions in 2018, 2019, and 2020 when shares increased. The substantial decrease in shares from 716 million in 2008 to 407 million in 2023 demonstrates aggressive buyback policies with an average repurchase rate of -3.2% annually. This trend is positive as it highlights MPC's strong focus on enhancing shareholder value through consistent stock buybacks, particularly strong in the recent decade.