Last update on 2024-06-27

Micron Technology (MU) - Dividend Analysis (Final Score: 5/8)

Explore the dividend analysis of Micron Technology (MU) with a final score of 5/8, assessing performance and stability based on an 8-criteria scoring system.

Short Analysis - Dividend Score: 5

We're running Micron Technology (MU) 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 measures the income generated by an investment as a percentage of its price. It is crucial for income-focused investors seeking stable returns, as it reflects a company's ability to pay dividends over time.

Micron Technology's current dividend yield of 0.539% is notably lower compared to the industry average of 0.65%. This data suggests that on a yield basis, Micron may not be as attractive to income-focused investors. Over the past 20 years, Micron largely did not pay dividends until 2021, when it started with a modest yield of 0.2147%. Although this yield has grown to 0.539% in 2023, it is still below the industry average. Meanwhile, the industry's yield has varied significantly but has generally been higher. The past trends in Micron's dividend yield coupled with its lower current yield suggest a less established history of returning value to shareholders through dividends. Investors may seek more consistent dividend payers in the sector.

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

This criterion assesses the historical consistency and growth of a company's dividend payments. A sustained growth rate above 5% often indicates strong financial health and a commitment to returning value to shareholders.

Based on the provided data, Micron Technology (MU) did not pay any dividends from 2003 to 2020, with the first dividend payment occurring in 2021. Therefore, we cannot calculate a meaningful 20-year Dividend Growth Rate as the dividend history is very recent. Over the last few years, the dividend per share surged from 0 to 122.5 in 2022 and then decreased slightly to 3.3708 in 2023. The average dividend ratio, calculated as 5.9938, is skewed by the significant lack of previous dividends and the recent large payment followed by a drastic decrease. This trend suggests high volatility in dividends rather than steady growth. Hence, Micron Technology does not meet the criterion of having a Dividend Growth Rate higher than 5% over the last 20 years, which is a negative indicator for long-term dividend reliability.

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

Explain the criterion for Micron Technology (MU) and why it is important to consider

The Average Payout Ratio measures the proportion of earnings a company returns to shareholders in the form of dividends. A stable payout ratio lower than 65% is seen positively because it indicates that the company is reinvesting a significant part of its earnings back into the business for growth, while still rewarding shareholders. It also suggests good financial health, as companies with lower payout ratios are less likely to cut dividends during economic downturns.

Dividends Well Covered by Earnings?

Dividends being well-covered by earnings ensures that the company has sufficient profits to distribute to shareholders without compromising its financial stability. This aspect is crucial as it reflects the company's ability to consistently reward shareholders while retaining enough earnings to fund growth and operations.

From 2021 to 2023, Micron Technology's dividend payout started, with values of 0.2, 0.445, and 0.46 respectively. However, the Earning per Share (EPS) data for the same period implies mixed signals. In 2021 and 2022, the EPS were 5.233 and 7.8121, respectively, which comfortably covers the dividends. However, 2023 saw a concerning turn with an EPS of -5.3367, indicating a negative earning scenario that results in the dividends not being covered by the earnings (EPS/DPS ratio for 2023: -0.086). Thus, the trend shows that while dividends were well-covered initially, the recent negative earnings in 2023 pose a risk and are not a good trend for this criterion.

Dividends Well Covered by Cash Flow?

Criterion 3: Dividends Well Covered by Cash Flow assesses whether the company's free cash flow is sufficient to cover its dividend payouts. This is crucial as it reflects the company's ability to sustain dividend payments which is an indicator of financial stability. A higher ratio suggests that dividends are well-supported by cash flow, whereas a lower ratio indicates potential risks in maintaining dividend payouts.

Analyzing the data for Micron Technology (MU) reveals a highly erratic trend concerning free cash flow and dividend payouts. Over the period from 2003 to 2023, there are numerous years where free cash flow was negative, such as in 2007, 2016, and 2023, making dividend payments challenging or unsustainable during these years. For instance, in 2022, the free cash flow was $3,114 million and the dividend payout amount wasn't fully covered as indicated by a ratio of approximately 0.15. Meanwhile, in certain years like 2010 and 2018, the free cash flow significantly exceeds dividend payout, reflecting some positive years of strong coverage, such as a high ratio of 5.55 in 2020. The unstable pattern pointed by the fluctuating ratios indicates moderate concern about Micron's ability to consistently cover dividend payments with free cash flow. Investors should be cautious and consider this volatility an element of risk.

Stable Dividends Since the Company Began Paying Dividends?

Explain the criterion for Micron Technology (MU) and why it is important to consider

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 because it signals reliability and predictability in income streams. These attributes are vital for planning financial goals and maintaining a steady income. It also indicates the company's financial health and its ability to generate consistent profits over extended periods.

Dividends Paid for Over 25 Years?

Analyzing whether a company has paid dividends consistently over a period of 25 years evaluates its long-term commitment to returning value to shareholders. A 25-year track record is a robust indicator of sustained financial health and reliability, key for investors seeking income stability.

From 1998 to 2022, Micron Technology (MU) did not pay any dividends, only starting in 2021 with an initial payment of $0.20 per share, followed by $0.445 in 2022, and $0.46 in 2023. Although the recent increases are a positive trend, Micron's history indicates that it hasn't been committed to paying dividends consistently over the last 25 years. This track record may be concerning for investors prioritizing long-term, steady income streams.

Reliable Stock Repurchases Over the Past 20 Years?

An analysis of stock repurchases over the past 20 years examines the company's buyback consistency and its impact on shareholder returns.

Micron Technology's share repurchase activities over the past 20 years have been somewhat sporadic. Out of the 21 years reviewed, only 8 years (2011, 2012, 2015, 2016, 2019, 2020, 2022, and 2023) showed noticeable buyback activities, with an average repurchase metric of 3.3398. Notably, the number of shares outstanding has fluctuated significantly, peaking in 2018 at 1.229 billion shares and showing a modest reduction in recent years, down to 1.093 billion in 2023. This variability suggests that while there have been periods of buybacks, they have not been consistent or aggressive. Such inconsistency could be viewed as a negative trend, as regular and reliable buybacks are often seen as a mechanism to boost shareholder value and signal management's confidence in the company's future prospects.