Last update on 2024-06-27

Nasdaq (NDAQ) - Dividend Analysis (Final Score: 3/8)

In-depth dividend analysis of Nasdaq (NDAQ): final score 3/8. Evaluates performance, stability, historical yield, growth rate, and payout ratios.

Short Analysis - Dividend Score: 3

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

We have analyzed Nasdaq (NDAQ) based on its dividend policy using eight key criteria. Nasdaq's dividend yield of 1.4792% is lower than the industry average of 2.13%, indicating a focus on capital gains rather than high dividend payouts. The average annual dividend growth rate is 5.87%, slightly above the 5% benchmark, but with significant volatility. The payout ratio is 72.24%, higher than the desired 65%, suggesting potential financial strain. While earnings generally cover dividends, recent years show weakening coverage. Cash flow coverage of dividends fluctuates but shows recent improvement. Nasdaq began paying dividends in 2012, with variability in payouts making it a newer player in dividend consistency. The company has not paid dividends for over 25 years, falling short of long-term payout reliability. Reliable stock repurchases are also noted, indicating confidence by management in the company's potential.

Insights for Value Investors Seeking Stable Income

Based on the analysis, Nasdaq (NDAQ) may not be the best choice for income-seeking investors reliant on stable and high dividends. Its dividend yield is below industry average, and the payout ratio is on the higher side, indicating potential financial strain. There is significant volatility in the dividend growth rate and some recent weakening in earnings and cash flow coverage of dividends. However, the company's focus on capital gains and confidence evidenced by stock repurchases could be attractive to investors looking for growth potential. It's worth considering if your investment priority leans towards capital appreciation rather than consistent dividend income.

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. It is an important metric for investors, particularly those looking for income through dividend payments, as it indicates the return on investment from dividends alone.

As of 2023, Nasdaq's dividend yield is 1.4792%, which is lower than the industry average of 2.13%. Historically, Nasdaq's dividend yield has been highly variable, with no dividends paid before 2012 and a range between 0.6619% to 2.0841% since then. The company's dividend yield peaked in 2018 at 2.0841%. While the current dividend yield is lower than the industry average, it is close to the higher end of its own historical range, reflecting a consistent improvement from previous years where it was mostly below the industry average. Over the past 20 years, Nasdaq's stock price has generally increased, reaching a peak close in 2021. The relatively lower dividend yield might be a reflection of the past stock price appreciation, suggesting a stronger capital appreciation focus rather than a high dividend payout strategy. This trend could be interpreted as neutral to bad for income-seeking investors but attractive to those looking for capital gains.

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

The Dividend Growth Rate metric evaluates the percentage increase in a company's dividend per share over a specified period. It is crucial for investors targeting regular income, as a consistent and higher dividend growth rate can indicate a company's financial health and its commitment to returning value to shareholders.

The Average Dividend Growth Rate for Nasdaq (NDAQ) over the past 20 years is approximately 5.87%. While this figure is slightly above the 5% benchmark, a closer inspection of the year-by-year growth rate reveals significant volatility. For instance, the growth rate in certain years peaked at 55.17% (2015), while it plummeted to -43.88% (2022). This inconsistency can be troubling for long-term investors who seek stable dividend growth. Furthermore, significant negative growth rates in recent years are a cause for concern, highlighting potential underlying issues in the company's operations or financial health. Therefore, even though the average growth rate meets the criteria, the erratic annual growth trends point towards a less favorable evaluation for the given criterion.

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

Explain the criterion for Nasdaq (NDAQ) and why it is important to consider

The average payout ratio over the specified period is around 72.24%. This exceeds the desired threshold of 65%, suggesting that Nasdaq has on average been distributing a high portion of its earnings to shareholders as dividends. This trend could imply future financial strain especially noted with spikes, for instance, in 2016 when the ratio skyrocketed to over 567%. These spikes indicate instances of extreme financial decisions that could impact the company's long-term sustainability.

Dividends Well Covered by Earnings?

The criterion evaluates whether the company's dividend payouts are supported by its earnings. This ensures sustainability of dividend payments, which is critical for long-term income-focused investors.

For Nasdaq (NDAQ), the Earnings per Share (EPS) data shows a generally positive trend from 2010 onwards with a few fluctuations. The Dividend per Share (DPS) started in 2012, with significant increases in initial years but a recent decline. The ratio of EPS to DPS was above 1 multiple years, indicating well-covered dividends during those times. However, the most recent years show decreasing coverage ratios, dropping as low as 0.34 in 2022 and 0.41 in 2023. Despite the occasional dips, the overall trend suggests a good, but slightly weakening, coverage of dividends by earnings. This is somewhat concerning but still within reasonable limits particularly because the company showed resilience in EPS growth.

Dividends Well Covered by Cash Flow?

Dividends Well Covered by Cash Flow measures the ability of a company to pay its dividends from its free cash flow. A higher ratio generally indicates a safer and more sustainable dividend. It's important because dividends paid from cash flow rather than debt or reserves are usually more reliable and indicative of a company's financial health.

Analyzing data from 2003 to 2023, Nasdaq (NDAQ) shows varying levels of dividend coverage by free cash flow. Earlier years such as 2003 have lower coverage ratios (0.112), while more recent years like 2019 have higher ratios (0.3648). This trend peaks notably in 2020 with a ratio of 0.3007 but stabilizes somewhat lower in 2023 (0.2867). This fluctuation suggests periods of better dividend sustainability interspersed with more challenging years. The trend can be good overall, especially with recent years showing healthier ratios, but some inconsistency merits caution.

Stable Dividends Since the Company Began Paying Dividends?

Explain the criterion for Nasdaq (NDAQ) and why it is important to consider

This criterion evaluates the consistency of dividends paid out by Nasdaq (NDAQ) to its shareholders over the past 20 years. Stable dividends are crucial for income-seeking investors as they rely on predictable and regular dividend payments to meet their financial needs. If dividends are cut significantly (by more than 20%) in any given year, it could signal potential financial instability or changing corporate strategy, which could increase the investment risk.

Dividends Paid for Over 25 Years?

Explain the criterion for Nasdaq (NDAQ) and why it is important to consider

Analyzing whether Nasdaq (NDAQ) has been paying dividends for over 25 years is key for investors who prioritize long-term income stability. Consistent dividend payouts over a long period signal reliability and commitment to shareholder returns, and they can often indicate strong and stable future cash flow expectations.

Reliable Stock Repurchases Over the Past 20 Years?

Explain the criterion for Nasdaq (NDAQ) and why it is important to consider

Stock repurchases, also known as share buybacks, refer to the practice where a company buys back its own shares from the marketplace. This can shrink the number of outstanding shares, potentially increasing the value of remaining shares and indicating confidence by the management in the company's potential. For Nasdaq (NDAQ), reliable stock repurchases over the past 20 years are a criterion to evaluate the financial strength and consistent capital return to shareholders. The importance of considering stock repurchases lies in its capability to bolster shareholder value and the signal it sends about the firm's financial health and future prospects.