Last update on 2024-06-27

Monolithic Power Systems (MPWR) - Dividend Analysis (Final Score: 4/8)

Analyze Monolithic Power Systems' (MPWR) dividend policy performance using an 8-criteria scoring system. Final score: 4/8. Dive deeper for more insights.

Short Analysis - Dividend Score: 4

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

Monolithic Power Systems, also known as MPWR, has been assessed based on how it handles its dividend policies, using 8 different criteria. MPWR's dividend yield is just below industry average, and it has declined over the past few years because the company's stock price has risen significantly. This indicates that the company might be more focused on growing rather than just paying out dividends. The company has an average annual dividend growth rate of 7.83%, which shows positive growth over time. MPWR's payout ratio over the last 20 years averages 37.21%, indicating they manage their money pretty well, even though there was a huge spike in 2012. Their dividends have shown some instability but are generally growing. The dividends are increasing and EPS is also trending upwards since 2016, showing a more stable future projection. One weak point is that MPWR has only been paying dividends since 2013, so they don't have a long record of doing this. They have historically not always covered dividends with their free cash flow, which could be risky. On the flip side, they've been consistent with stock repurchases over the last 20 years, which is good for shareholders.

Insights for Value Investors Seeking Stable Income

Based on the analysis, Monolithic Power Systems (MPWR) shows some promising signs for future growth and stability. Despite a short history in paying dividends and some fluctuations in financial stability, the company's commitment to growth, demonstrated by their stock repurchases and increasing dividends, is encouraging. Their reasonable payout ratio and steady increase in EPS show health and potential for stable returns. If you're looking for long-term growth and can handle some risk, MPWR might be worth considering for your investment portfolio.

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 measures how much a company pays out in dividends each year relative to its stock price. It is a critical measure for investors seeking income from their investments, as higher yields typically indicate a more substantial income stream. However, exceedingly high yields may be a red flag for potential issues within the company.

Monolithic Power Systems (MPWR) currently has a dividend yield of 0.6341%, compared to the industry average of 0.65%. Both yields are relatively low, which is common in industries prioritizing growth over dividends. Over the last 20 years, MPWR's dividend yield has shown variability. In 2012, it had an unusually high yield of 4.4883% due to a specific event or adjustment. More recently, after a peak in 2018 at 1.0323%, the yield has been declining, coinciding with significant increases in MPWR's stock price—from $116.25 in 2018 to $630.78 in 2023. This decreasing yield reflects rapidly appreciating stock prices, likely due to strong growth expectations, reducing the relative dividend payout. Therefore, although the current yield may seem modest, it could indicate that MPWR is allocating resources towards growth and expansion rather than solely focusing on dividend payouts, which could be favorable for long-term investors.

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

Average dividend growth rate measures the year-over-year percentage increase in dividends paid. A higher rate is usually a positive sign indicating company confidence and profitability.

Analyzing the dividend ratio provided for MPWR over the last 20 years, we observe significant fluctuations with several years showing no dividend and others with high percentage increases. Specifically, the average dividend growth rate stands at 7.83%. This exceeds the 5% threshold, suggesting overall positive growth despite intermittent non-payments. This trend is quite unstable but positive overall for dividend investors.

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

The average payout ratio represents the proportion of earnings a company pays to its shareholders in the form of dividends, expressed as a percentage of its total earnings. A payout ratio lower than 65% is generally considered healthy, as it indicates that the company is retaining enough earnings to reinvest in its growth and operations while also rewarding its shareholders.

The payout ratio data for Monolithic Power Systems (MPWR) from 2003 to 2023 shows that the company had no dividends for several years, followed by fluctuations in the payout ratio. Notably, the payout ratio spiked to 230.0437% in 2012, but that was an anomaly in an otherwise more conservative dividend policy. The average payout ratio over these 20 years is approximately 37.21%, which is well below the 65% threshold. This indicates a sound and sustainable dividend policy overall, although the high anomaly in 2012 warrants further investigation. The trend seems favorable as the more recent payout ratios are consistently lower, suggesting better financial stability.

Dividends Well Covered by Earnings?

Dividends should be well covered by earnings to ensure the dividend payments are sustainable. It indicates financial health and the ability to reward shareholders.

Examining the trend from 2003 to 2023, Monolithic Power Systems (MPWR) shows a mixed ability to cover its dividends with earnings per share (EPS). Initially, the company had no dividends for years, indicating either reinvestment into the company or financial instability. This trend altered in 2010, when dividends commenced but without consistent EPS coverage until later years. A notable aspect is the persistent increase in EPS from 2016 to 2023, signaling improved capacity to cover dividends. In 2023, the EPS coverage is 0.445, which, although relatively low, denotes an upward trend. The EPS consistently overshadowing dividends since the mid-2010s suggests a stable and potentially sustainable dividend policy. However, maintaining or increasing this ratio would be crucial moving forward for shareholder confidence.

Dividends Well Covered by Cash Flow?

Explain the criterion for Monolithic Power Systems (MPWR) and why it is important to consider

Dividends are fundamentally important for investors, as they represent a return on their investment. A key consideration in dividend evaluation is whether a company’s dividend payments are well-covered by its free cash flow. Free cash flow represents the cash a company generates after accounting for all capital expenditures, and it is a critical determinant of the sustainability of dividend payouts.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments, where the dividend per share did not drop by more than 20% over the past two decades, is of utmost importance for income-seeking investors.

An analysis of Monolithic Power Systems (MPWR) dividend payments over the last 20 years reveals that the company started providing dividends in 2012. Prior to that, the dividend per share was 0 for several years. Since 2012, the dividend has steadily increased every year without any drops of more than 20%, signifying robust and consistent performance in dividend payouts. For income-seeking investors, this trend is highly favorable. The last recorded dividend per share in 2023 is $4, a significant increase from the initial $1 in 2012. This consistent upward trend implies strong company performance and a commitment to returning value to shareholders, making it an attractive option for investors focusing on stable dividend income.

Dividends Paid for Over 25 Years?

The criterion 'Dividends Paid for Over 25 Years' assesses whether a company has a long-standing history of consistent dividend payments, which can be an indicator of financial stability and shareholder value.

Monolithic Power Systems (MPWR) has not met the criterion of paying dividends for over 25 years. Based on the provided data, the company initiated dividend payouts only in 2013. The dividend payment started modestly at $0.1 per share and has shown steady growth over the years, reaching $4 per share in 2023. While the continuous increase in dividend per share over a decade reflects the company's robust financial health and commitment to returning value to shareholders, it does not fulfill the 25-year benchmark, indicating a shorter history of dividend distributions compared to more established dividend-paying companies. This trend is relatively good as it shows a positive growth trajectory in dividends, which can be appealing to investors looking for growing income. However, the shorter duration of dividend payments could be seen as a potential risk for conservative investors looking for a lengthy track record.

Reliable Stock Repurchases Over the Past 20 Years?

Explanation of Reliable Stock Repurchases and their importance.

Reliable stock repurchases indicate that a company consistently buys back its own shares over a period of time. This is important as it demonstrates the company's commitment to enhancing shareholder value. Stock repurchases can also signal that the company believes its own shares are undervalued, and it can increase earnings per share by reducing the number of shares outstanding.