Last update on 2024-06-27

NOV (NOV) - Dividend Analysis (Final Score: 4/8)

Assess the performance and stability of NOV (NOV) dividend strategy using an 8-factor scorecard. Final Score: 4/8

Short Analysis - Dividend Score: 4

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

NOV's dividends were analyzed using eight different criteria to see how stable and reliable they are for investors. Here's a quick rundown: 1. **Dividend Yield**: It's important to see if NOV's yield is higher than the industry average because it shows if the stock offers good returns. NOV's dividend yield over the last 20 years has been inconsistent, with extreme ups and downs. 2. **Dividend Growth Rate (>5%)**: Seeing steady growth of more than 5% per year would be a good sign. But NOV's growth rate has been all over the place, especially with massive changes like a 300% jump in 2023. This suggests their dividends aren't stable. 3. **Payout Ratio (<65%)**: Ideally, companies should pay less than 65% of their earnings as dividends to keep them sustainable. NOV's payout ratio was highly unstable, with certain periods showing negative figures, raising red flags about its reliability. 4. **Earnings Coverage**: To check if earnings are enough to cover the dividends paid. NOV has had volatile earnings, with some years showing losses which makes it risky in terms of sustaining payouts. 5. **Cash Flow Coverage**: Cash flow should cover dividends to be sustainable. NOV had strong cash flow coverage in the past but has faced negative trends from 2019 onwards, posing risks to dividend viability. 6. **Stable Dividends**: No significant drops (>20%) in dividends are preferred for reliability. NOV's dividends have shown significant drops, indicating instability. 7. **25-Year Payment History**: Consistency over 25 years marks a reliable company. NOV hasn't met this, as they only started paying dividends in 2010 and have shown inconsistency since. 8. **Stock Repurchases**: Regular buybacks indicate financial health. NOV's buybacks were limited to just a few years, showing they don't consistently use this method to return value to shareholders.

Insights for Value Investors Seeking Stable Income

Based on this detailed analysis, investing in NOV might be risky if you're looking for consistent and reliable dividends. The company shows a lot of variability and instability in payouts, along with irregular stock buybacks. This instability can be concerning for long-term dividend investors. If you seek reliable income through dividends, it might be better to consider companies with a more stable dividend history and financial health.

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?

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

Dividend yield is calculated as the dividend per share divided by the stock price. A high dividend yield can indicate an undervalued stock or atractive returns for investors. But if the yield is too high, it may also point towards financial struggles within the company. Evaluating the trend over 20 years can provider broader insight. Additionally, comparing it to the industry average helps gauge NOV's competitive positioning.

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

Dividend Growth Rate over the last 20 years highlights any increasing or decreasing trend in the company's dividend payments over time. A value above 5% would be considered a strong indicator of the company prioritizing shareholder returns and performing well financially.

The Dividend Ratio data for NOV (NOV) shows significant variability over the 20-year period with values of 0 in numerous years and extreme fluctuations including values of -75 and 300. Critically, these values suggest considerable inconsistency in how NOV approaches dividend payouts, potentially in response to changing financial conditions. The average of 11.59% seems artificially inflated likely due to extreme outliers, particularly the 300% dividend in 2023 and the negative values which are not typical in stable dividend policies. From 2003 to 2023, the inconsistency and negative figures reflect poorly on their dividend growth rate stability, suggesting considerable volatility and lack of a clear growth trend. This trend is generally bad for those seeking reliable dividend growth from NOV (NOV).

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

Explain how the Average Payout Ratio shows whether a company is paying out a healthy proportion of its earnings as dividends, ensuring sustainability and growth.

In examining NOV's payout ratio over the last 20 years, we notice significant volatility, particularly during years like 2015 and 2018 where the payout ratio was notably negative. This indicates periods of financial instability where NOV may not have had positive earnings to support its dividends, leading to an unsustainable payout ratio in those years. The scrutiny of their payout trend signals several years with zero payouts and some highly negative values, which drags the average payout ratio to -11.09%, far from breaching the 65% threshold. Typically, a payout ratio below 65% suggests a company is balancing rewarding shareholders while retaining enough earnings for growth. For NOV, the historical average payout ratio doesn't meet this criterion, signaling past financial challenges affecting dividend reliability.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings

The ratio of dividends covered by earnings per share (EPS) is a vital measure of dividend sustainability and the company's profitability. Keeping an eye on the trend in this ratio helps understand if the company can continue to pay and potentially increase dividends in the future. NOV's EPS has seen significant fluctuations over the past two decades. Notably, the EPS was negative during the periods of 2015-2017 and 2019-2020, indicating net losses. However, there has been a recovery seen in 2021 and a further increase in 2022. Similarly, the dividend per share (DPS) has varied, with substantial payments before 2015 and a decline afterward, reaching a minimal level of $0.05 per share in 2020-2021. In 2017 and 2018, the dividend cover ratios were unsustainable due to high dividend payments despite negative earnings. The ratio of dividends covered by EPS has mostly been below ideal levels, except in current positive years like 2023. For instance, in 2023, the dividend coverage ratio rose to 0.503 due to a significant increase in EPS ($2.5267) against a stable DPS ($0.2). Overall, the recent trend in 2022 and 2023 is a positive indicator for dividend sustainability, but the historical inconsistency and periods of low ratios are cautionary. Diversifying dividend strategies or focusing on performance periods with strong earnings are prudent moves for potential investors.

Dividends Well Covered by Cash Flow?

The criterion examines if the company's dividends are well-covered by its cash flow, a key indication of financial health and dividend sustainability.

The free cash flow (FCF) of NOV over the years shows significant volatility, with some years of extremely high cash generation (e.g., 2013 and 2014 with $2.72 billion and $1.92 billion respectively) and some negative cash flow years (e.g., 2003 and 2023 with -$1.37 million and -$140 million respectively). Specifically, in the years from 2009-2015, NOV displayed strong FCF that more than adequately covered its dividend payouts, as seen from the dividend coverage ratios greater than 1 in many cases, especially in 2012 (5.64x). These years suggest a strong cash flow position. However, starting from 2016, the dividend coverage ratios dropped drastically, with several years showing negative coverage (e.g., 2022's -0.20). This indicates that the free cash flows in these years were insufficient to cover the dividend payments, showcasing a deteriorating financial position and heightened risk to its dividend sustainability. The trend from 2019 onwards is particularly concerning as it shows a consistent decline, indicating a potential ongoing struggle to maintain free cash flows sufficiently to cover dividend obligations. Overall, while NOV had periods of strong dividend coverage in the past, the recent negative trends pose a significant risk to dividend viability.

Stable Dividends Since the Company Began Paying Dividends?

Explain the criterion for NOV (NOV) 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.

Dividends Paid for Over 25 Years?

Criterion 6 focuses on whether a company has consistently paid dividends for over 25 years. This is crucial as it signifies stability, reliability, and financial well-being. Companies with such a record are often seen as safe investments.

The data provided shows that NOV (NOV) did not pay any dividends from 1998 to 2009. They began paying dividends in 2010 with varying amounts annually, reaching $1.84 per share in 2015. However, dividends substantially dropped to $0.61 per share in 2016 and further to $0.2 per share in 2017 and beyond, indicating inconsistency. Therefore, NOV does not meet Criterion 6 of paying dividends consistently for over 25 years, which is a negative aspect for long-term dividend investors. This inconsistency might reflect operational challenges or management's shifting priorities in capital allocation.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable Stock Repurchases refer to the company's consistent buyback of its own shares over a period of time. This can indicate strong financial health and shareholder value.

Reviewing the data for NOV (NOV) over the past 20 years, only the years 2015 and 2016 indicate a reduction in the number of shares, changing from 430 million shares in 2014 to 387 million shares in 2015, and then further to 376 million shares in 2016. The rest of the years witnessed either an increase or stability in the number of shares, with the average repurchase rate over this period being 5.4218. The limited number of years with share reductions and the low average of share repurchases suggest that NOV has not had a consistent or reliable buyback strategy over the past two decades. This indicates that the company may not have significantly focused on using share repurchases as a way to return value to shareholders, which could be a concern for potential investors seeking robust shareholder returns.