Last update on 2024-06-27

Newell Brands (NWL) - Dividend Analysis (Final Score: 5/8)

Explore the dividend stability and performance analysis of Newell Brands (NWL), scored 5/8 using an 8-criteria system. Is it sustainable for long-term investors?

Short Analysis - Dividend Score: 5

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

The dividend analysis for Newell Brands (NWL) shows that while it has a high dividend yield of 5.0691% compared to the industry average, this may be due to its falling stock price rather than actual growth in dividends. The company's average annual dividend growth rate over the past 20 years is inconsistent and well below the ideal 5%. The average payout ratio is alarming, showing -2.306%, indicating potential financial instability. Dividends are often not well-covered by earnings or cash flow, raising further concerns about sustainability. However, NWL has paid dividends for over 25 years, though recent cuts in 2023 are concerning. The stock repurchase history is mixed, with some years showing strong buybacks and others showing inconsistencies. Overall, NWL's dividend policy appears risky and unstable due to these factors.

Insights for Value Investors Seeking Stable Income

Given the fluctuations in dividend yield and growth, inconsistent payout ratios, insufficient coverage by earnings and cash flow, and mixed stock repurchase history, Newell Brands (NWL) may not be the best choice for conservative investors seeking stable and reliable dividend income. Potential investors should exercise caution and consider looking at more stable alternatives.

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 Newell Brands (NWL) and why it is important to consider

The dividend yield of Newell Brands (NWL) is currently 5.0691%, which significantly exceeds the industry average of 1.82%. This suggests that Newell Brands is offering a much higher return on investment in terms of dividends compared to its peers, which can attract income-focused investors. Over the past 20 years, the dividend yield has experienced significant fluctuations, ranging from a low of 1.1001% in 2010 to a high of 8.589% in 2008. The recent increase to 5.0691% from 4.2125% in the previous year indicates a positive trend, especially when juxtaposed with the declining stock price, which dropped from $21.84 in 2021 to $8.68 in 2023. Although the elevated dividend yield can be appealing, it is essential to analyze the sustainability of such dividends. The substantial rise in dividend yield in 2023 partly owes to the lowering stock price rather than an increased dividend per share, which actually reduced from $0.92 to $0.44. This implies that the higher yield might not necessarily indicate growing confidence but rather an effort to maintain investor interest amid declining shares. Such a situation requires cautious evaluation as it might signify potential financial stress. Overall, while a higher yield is attractive, sustainability should be critically assessed.

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

The dividend growth rate measures the annualized percentage rate of growth that a particular dividend achieves over time. A rate higher than 5% suggests robust and steadily increasing profits, making it a sign of financial health and potential long-term investment strength.

Analyzing Newell Brands' dividend growth over the past 20 years shows significant volatility. From 2003 to 2010, the company showed many years with zero dividends indicating unstable or no payouts. Dramatic fluctuations such as -69.6429 in 2009 and 48.2759 in 2012 also highlight unstable dividend policies. The average dividend ratio of 1.66% is far below the 5% benchmark for ideal growth, implying that Newell Brands does not exhibit strong, consistent dividend growth. This inconsistency can deter long-term investors looking for stable income from dividends, thereby making this a negative trend in the context of robust dividend growth.

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

A company's payout ratio, defined as the proportion of earnings paid out as dividends to shareholders, is essential in evaluating dividend sustainability. An average payout ratio of less than 65% is considered desirable as it ensures that the company retains enough earnings for growth and other operational needs.

The data provided for Newell Brands (NWL) demonstrates highly volatile payout ratios over the last 20 years, with values fluctuating from a low of -494.1176% in 2003 to a high of 365.3693% in 2019. These values indicate periods of negative earnings (resulting in negative payout ratios) or extremely high payouts relative to earnings. The overall average payout ratio stands at -2.306%, suggesting that, on average, NWL has not been able to consistently maintain a positive and realistic payout ratio. This trend is alarming as it depicts an unreliable dividend sustainability.While individual years like 2013 to 2016 and 2021 to 2022 show payout ratios within a normal range, the inconsistency makes NWL a risky investment from a dividend perspective. Therefore, the trend is negative for the given criteria.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings.

Given the Earnings per Share (EPS) and Dividend per Share (DPS) data for Newell Brands (NWL) over the years, it is essential to assess whether dividends are well covered by earnings. When EPS covers the DPS, it indicates financial health and sustainability in maintaining shareholder returns. Let's examine the provided data: From 2003 to 2023, EPS has shown volatility with figures ranging from -14.604 to 5.6328, while DPS oscillated between 0.2 to 0.92. An optimal scenario shows EPS vastly exceeding DPS; however, when we see EPS deficits, it implies dividends are being funded by reserves or debt, which is unsustainable long-term. Over these years, negative coverage appears during multiple periods, notably in 2003 (-4.9412), 2008 (-4.4492), and as recent as 2023 (-0.4696). For instance, in 2017, EPS (£5.63) covered DPS (£0.88) yielding a positive yet minimal coverage ratio, suggesting an atypical profitable year that wasn’t mirrored in consecutive periods thereafter—specifically in 2018 and 2019. Though partial recovery was seen in 2022, an overall downward earning trend raises concerns. Negative trends in 2020 and 2021 further imitate a fragile fiscal situation, dismissing dividend sustainability. Therefore, the broader picture reveals inadequate dividend coverage through insufficient consistent earnings, portending possible future reductions or suspensions which investors must heed.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow imply a company's ability to sustain its dividend payouts without financial strain.

Evaluating Newell Brands' ability to cover dividends with cash flow reveals significant volatility. A dip in coverage rates occurred in 2009 (15.88%) and 2010 (13.26%) due to decreased free cash flow and substantial returns to investors. Peaks in 2017 (81.51%) indicate improved financial management. However, the negative coverage rate in 2022 (-65.92%) shows alarming financial instability and cash outflows, while 2023 (28.48%) partially recovers. The unpredictable trend highlights risks to dividend reliability despite past periods of robust dividend coverage.

Stable Dividends Since the Company Began Paying Dividends?

importance of stable dividends

Interpreting the trend based on the given numbers.

Dividends Paid for Over 25 Years?

Dividends Paid for Over 25 Years criterion examines if a company has consistently paid dividends for at least the last quarter century. Companies that meet this criterion demonstrate a long history of shareholder returns, an indication of financial health and commitment to distributing profits.

Newell Brands (NWL) has paid dividends for the entire period from 1998 through 2023, signaling a substantial commitment to returning value to shareholders. The dividend per share has varied, from a high of 1.973 in 1998 down to 0.255 in 2009, reflecting cuts during economic downturns, notably post-2008 financial crisis. The dividends grew from 2011 onwards, hitting 0.92 per share in 2020-2022 before being cut again to 0.44 in 2023. Overall, the trend is positive, but the cut in 2023 raises concerns about fiscal health and future dividend security. Therefore, while the long-term trend of paying dividends for over 25 years is good, recent decreases must be monitored.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases indicate a company's strategy to return value to shareholders and can lead to share price appreciation and higher dividends.

Newell Brands (NWL) has shown a mixed record for stock repurchases over the past 20 years, with significant fluctuations in the number of outstanding shares. Out of the past 20 years, the company has conducted reliable repurchases in 10 separate years, which translates to an average repurchase frequency of 2.7571 years. Especially notable are the years 2013, 2014, and 2015, where the number of shares significantly decreased from 291.8 million in 2013 to 271.5 million in 2015. More recent years like 2018 and 2019 also saw reliable repurchases. The trend is beneficial for existing shareholders as it can lead to higher earnings per share (EPS) and generally supports share price. However, inconsistencies and significant variations in the share count, such as the extreme increase to 488 million shares in 2017, suggests that the company's buyback strategy has not been consistently implemented. Considering the average frequency, NWL has room for improvement in maintaining a steadier and more reliable buyback program, which could help increase investor confidence.