Last update on 2024-06-27

Northrop Grumman (NOC) - Dividend Analysis (Final Score: 7/8)

Explore Northrop Grumman (NOC) - Dividend Analysis with a 7/8 score. Comprehensive review on performance, stability, and growth of NOC's dividends.

Short Analysis - Dividend Score: 7

We're running Northrop Grumman (NOC) 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 represents the annual dividend payment to shareholders as a percentage of the stock's current price. It is important because it indicates the potential return on investment from dividends alone.

Northrop Grumman's current dividend yield of 1.5679% is significantly higher than the industry average of 1.16%, which suggests that the company is offering a more attractive dividend compared to its peers. However, this yield has been on a downward trend over the past 20 years. For instance, in 2003, the dividend yield was 3.7048%, and it has steadily decreased to the current 1.5679%, mirroring the increase in the stock price from $43.19 to $468.14 over the same period. While a declining yield can be a concern, it is also indicative of strong stock price appreciation, which might offset the lower yield. Combined with a consistently increasing dividend per share from $1.6 in 2003 to $7.34 in 2023, the overall trend suggests a balanced growth where dividend payments per share are increasing, despite the yield showing a downward trend due to substantial stock price appreciation.

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

The Dividend Growth Rate is crucial to understanding the sustainability and growth prospects of a company's dividend payouts. A higher growth rate above 5% indicates robust financial health and confidence in future earnings.

Based on the provided dividend per share ratio values spanning from 2003 to 2023, we observe fluctuations and periods of negative growth. With an average dividend ratio of approximately 8.13%, Northrop Grumman exhibits a typical growth rate above 5% in many years. However, the volatility, particularly the negative percentages in earlier years, is a red flag. Consistent positive growth in recent times solidifies its current financial viability and promising outlook. Overall, recent trends are good but warrant careful monitoring.

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

A payout ratio below 65% is often considered healthy for most companies as it indicates a balance between rewarding shareholders and retaining earnings for growth.

The data reveals that Northrop Grumman has maintained an average payout ratio of approximately 28.52% over the last 20 years, significantly below the 65% threshold. This suggests a strong capacity for the company to balance shareholder rewards and internal reinvestment. The relatively low payout ratio indicates prudent financial management and provides a buffer during economic downturns. Northrop Grumman's payout ratio only exceeded 65% in 2003, likely an anomaly, enhancing its long-term attractiveness as a dividend-paying stock.

Dividends Well Covered by Earnings?

Earnings per share (EPS) indicate a company's profitability, showing how much profit is made per outstanding share. The dividend payout ratio (DPR) is the fraction of earnings paid out as dividends. If dividends are well-covered by earnings, it suggests sustainable practices which can support future dividend growth.

The trend shows that Northrop Grumman's EPS have generally been rising over the long term, albeit with some fluctuations. For instance, EPS peaked dramatically in 2021 at 43.6993 before declining significantly to 31.6075 in 2022 and even further to 13.571 in 2023. On the other hand, dividends per share have consistently increased each year, reflecting a commitment to rewarding shareholders. The dividend coverage ratio, calculated as the ratio of EPS to dividends per share, spikes significantly in 2021 corresponding to high EPS. However, in 2023, the ratio is much lower at 0.5409, reflecting a reduced EPS. These fluctuations in the ratio suggest periods of both strong and weak dividend coverage. Despite the declining earnings in recent years, the company's strong EPS performance in previous years indicates a historically strong capacity to cover dividends. This trend is mixed; while the recent coverage ratios indicate some concerns, the overall historical EPS growth suggests a continued potential for dividend sustainability.

Dividends Well Covered by Cash Flow?

Dividends being well-covered by cash flow ensures that the company generates sufficient cash to meet its dividend obligations. This indicates financial stability and the sustainability of dividends.

When examining Northrop Grumman's free cash flow and dividend payout figures from 2003 to 2023, it's evident that the cash flow coverage for dividends has varied significantly over the years. The ratio of free cash flow to dividend payout amount dipped as low as 0.19 in 2005, indicating a precarious situation where free cash flow barely covered the dividend payouts. However, more recent years like 2021 and 2023 show stronger coverage ratios of 0.45 and 0.53 respectively. Although these are not exceptionally high figures, they indicate a better position than the earlier years. The ratio being above 1 in 2003 is an abnormality, potentially due to other financial maneuvers or unusually high cash flow. Overall, the trend shows improvement in cash flow coverage for dividends over time, which is a good indicator of growing financial stability. However, continuous improvement is essential to ensure long-term sustainability.

Stable Dividends Since the Company Began Paying Dividends?

Assessing the stability of dividends over a long period, such as 20 years, provides insight into the reliability of income for investors. Stable or increasing dividends signal financial health.

Based on the data spanning from 2003 to 2023, Northrop Grumman (NOC) exhibits consistent growth in its dividend per share, starting from $1.6 in 2003 and increasing to $7.34 in 2023. Over these two decades, there has not been a single year where the dividend per share dropped by more than 20%. This steady increase and lack of significant decreases demonstrate Northrop Grumman's commitment to providing stable and potentially growing income to its shareholders, which is a very positive trend for income-seeking investors looking for reliable dividend payouts. The stability also reflects the company's robust financial management and consistent performance.

Dividends Paid for Over 25 Years?

Explain the criterion for Northrop Grumman (NOC) and why it is important to consider

Dividends paid for over 25 years is a critical indicator as it shows a company’s commitment to returning value to its shareholders over the long term. It also signals stability and reliability in earnings, which is crucial for investors looking for steady income. This trend reinforces investor confidence in the company's financial health and operational consistency.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable Stock Repurchases Over the Past 20 Years indicate a company's commitment to returning value to shareholders. Consistent share buybacks reduce the number of outstanding shares, potentially increasing earnings per share (EPS) and the stock price.

Over the past 20 years, Northrop Grumman (NOC) has demonstrated reliable stock repurchases, reducing its number of shares from 368.36 million in 2003 to 151.5 million in 2023. This consistent reduction, averaging -4.2946% per year, reflects a strong commitment to enhancing shareholder value. Except for slight irregularities, such stable buybacks are generally favorable as they indicate efficient capital return and confidence in the company's future prospects. Furthermore, continuous reduction suggests robust cash flow and efficient management, thus beneficial for investors.