Last update on 2024-06-27

NVIDIA (NVDA) - Dividend Analysis (Final Score: 4/8)

NVIDIA (NVDA) dividend analysis reveals a score of 4/8 based on an 8-criteria system, assessing stability and performance from yield to payout ratio.

Short Analysis - Dividend Score: 4

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

We evaluated NVIDIA (NVDA) based on 8 criteria to analyze its dividend policy. The stock received a score of 4/8. Here's a quick summary: 1. **Dividend Yield**: At 0.0323%, it's far below the industry average of 0.65%. Historically peaked in 2013 but largely decreasing, indicating a preference for capital gains. 2. **Dividend Growth Rate**: Highly variable and inconsistent with no strong evidence of >5% growth rate. 3. **Payout Ratio**: Consistently low at 8.47%, reflecting reinvestment instead of dividends. 4. **Earnings Cover**: Inconsistent coverage, recent years show relatively low coverage, signaling potential sustainability issues. 5. **Cash Flow Coverage**: Fluctuating and weak in recent years, suggesting weak support by cash flow. 6. **Dividend Stability**: High variability and notable declines, indicating instability in payouts. 7. **Longevity of Dividends**: Only started paying in 2012, hence does not meet the 25-year criterion. 8. **Stock Repurchases**: Continues with stock buybacks, showing strong capital return and confidence.

Insights for Value Investors Seeking Stable Income

NVIDIA (NVDA) may not be ideal for income-focused investors seeking stable and high dividend yields or consistent long-term payouts. However, it might appeal to growth investors who value reinvestment and potential stock price appreciation. The low dividend yield and inconsistent payouts suggest that the company prioritizes growth and reinvestment over steady dividend income. If you're looking for a steady income through dividends, you may want to consider other stocks with a more stable and higher dividend yield.

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

The current dividend yield for NVIDIA (NVDA) is 0.0323%, which is significantly lower than the industry average of 0.65%. Over the past 20 years, NVIDIA's dividend yield peaked dramatically in 2013 at 21.3125%, but has generally followed a downward trend since then. The decline suggests that while the company has returned value to its shareholders through dividends in the past, it has increasingly retained earnings to reinvest in growth opportunities. Given NVIDIA's significant stock price appreciation, this low dividend yield might indicate a shareholder preference for capital gains over income. This trend can be seen as unfavorable for income-focused investors but favorable for growth investors who benefit from the company's capital reinvestment.

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

The dividend growth rate helps investors determine the pace at which dividends have increased over a specific period. A consistent growth rate above 5% suggests strong financial health and commitment to returning value to shareholders.

Looking at the data over the last 20 years, NVIDIA (NVDA) has had highly variable dividend growth rates with significant fluctuations. Without consistent annual data indicating sustained growth, it's challenging to assert that the company has maintained a growth rate higher than 5%. With an average dividend ratio of 8.600440625000006%, the raw average seems promising but the volatility overshadows its reliability. This trend is not definitively good or bad, but highlights the need for further scrutiny into specific periods of stability and growth.

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

NVIDIA's Average Payout Ratio and its importance for investors.

Judging by just the average payout ratio over the given period, NVIDIA's 8.47% is distinctly below the 65% threshold, signaling a conservative approach to earnings distribution. This is generally perceived as a positive trend, denoting that the company holds back a substantial part of its earnings for reinvestment, which could potentially fuel growth. Additionally, there are years, especially in early and recent phases, where the payout ratio is zero, implying that NVIDIA prioritizes retained earnings over dividends. This low and sometimes non-existent payout ratio can be seen as a sign of a high-growth company that prefers reinvestment over immediate shareholder payouts.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings

In assessing whether NVIDIA's dividends are well covered by its earnings, we look into the ratio of Earnings Per Share (EPS) compared to Dividend Per Share (DPS) over a timeline from 2003 to 2023. A well-covered dividend by earnings is denoted by a high ratio, showing company profitability adequately supports dividend payout. From the data provided, the company's averaged EPS has been quite variable over the years with certain years reflecting zero or negative EPS, notably in 2009 and 2010. This variability suggests occasional struggles in profitability. The ratio of dividends covered by earnings started recording in 2011, suggesting the dividends being declared post that period. The highest coverage occurred in 2013 at 50.54% coverage; however, the trend generally hovers at much lower percentages. The year 2017 and after show EPS to DPS with relatively stable figures around 10% to 14%, a significant drop from earlier years. A highly covered dividend indicates less pressure on the company’s finances and a measure of safety for investors relying on dividends. Given the data, NVDA's dividend coverage can be considered inconsistent and relatively low in the latter years, highlighting potential challenges in sustaining high dividend payouts. Moreover, the trend of reducing coverage (dropping to single digits in most recent years) indicates NVDA might be increasing dividends without a correlating rise in earnings, which might eventually pressurize financial stability if EPS growth doesn't keep up. Thus, while the practice started strong around 2012-2014, the most recent trend might be alarming for dividend-focused investors. This trend is overall not favorable for maintaining high sustainability of dividends without risking financial stability.

Dividends Well Covered by Cash Flow?

Examining whether a company's dividends are well-covered by cash flow involves assessing if the free cash flow sufficiently exceeds the dividend payout to ensure sustainability. It is crucial because relying too heavily on debt to fund dividends can compromise financial stability.

Over the years, NVIDIA's dividend coverage ratio fluctuated significantly. Initially, NVIDIA didn't pay dividends at all until 2013. From then, the coverage ratio showed high volatility; for instance, in 2014, the coverage increased to roughly 31.27%, showing a moderate cushion. However, in recent years, the coverage ratio decreased, with notable dips such as 0.049 in 2021 and only 0.104 in 2023. These low figures suggest a weaker dividend coverage by cash flow which can be a concern. Although NVIDIA has a strong free cash flow, for sustained dividend policy and financial health, improving this coverage would be prudent.

Stable Dividends Since the Company Began Paying Dividends?

Analysis of the stability of dividend payments over 20 years where a consistent payout and no drop greater than 20% indicates reliability and management's commitment to returning value to shareholders.

Examining NVIDIA's dividend per share over the past 20 years reveals a concerning trend for income-seeking investors. Initially, from 2003 to 2011, NVIDIA did not distribute dividends, indicating a growth phase focusing on reinvestment. Starting in 2012, the company began issuing dividends which saw variability in growth. Particularly notable are the significant declines during certain periods. For instance, between 2017 and 2018, the dividend dropped from $0.1678 to $0.16, and more sharply from 2021 to 2023, where it decreased from $0.16 to $0.016. Such fluctuations exceed the 20% threshold, marking it as an unfavorable trend for those prioritizing stable income. These variations may reflect underlying operational challenges or strategic financial decisions, but undeniably suggest instability in dividend income from NVIDIA.

Dividends Paid for Over 25 Years?

Consistent dividend payout over a lengthy period demonstrates a company's strong financial health and shareholder commitment. A history of over 25 years of dividends also shows resilience across various economic cycles.

Based on the data provided, it appears that NVIDIA began paying dividends in 2012. Given that the company had not paid any dividends prior to this year, it does not meet the criterion of paying dividends for over 25 years. While NVIDIA's initiation of dividends and growth in dividend payments indicates strong performance, it cannot be said to fulfill this particular criterion. For example, starting with a dividend per share of approximately $0.0187 in 2012, the company increased its dividend to peak values ranging between $0.056 and $0.176 in recent years before dipping. This growth trend is positive but the insufficient duration of payout could be concerning for more conservative investors who prioritize long-term dividend histories.

Reliable Stock Repurchases Over the Past 20 Years?

criterion for NVIDIA (NVDA) and why it is important to consider

For NVIDIA (NVDA), a hallmark of reliable stock repurchases over the past 20 years is indicative of robust capital returns and management’s commitment to shareholder value. Companies with consistent buybacks generally signal financial health and confidence in their future prospects. Moreover, stock repurchases effectively reduce the number of shares outstanding, improving metrics like earnings per share (EPS).