Last update on 2024-06-27

Old Dominion Freight Line (ODFL) - Dividend Analysis (Final Score: 6/8)

Comprehensive dividend analysis of Old Dominion Freight Line (ODFL), scoring 6/8 on dividend stability, growth, and payout ratios. Insightful for investors.

Short Analysis - Dividend Score: 6

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

We reviewed Old Dominion Freight Line (ODFL) based on an 8-criteria scoring system to see how well their dividend policy performs and how stable it is. ODFL scored 6 out of 8. Here's a quick look: 1. **Dividend Yield**: ODFL's dividend yield is 0.7895%, higher than the industry average of 0.67%. It shows their commitment to giving back to investors. 2. **Growth Rate**: Their average dividend growth rate over 20 years is 10.61%, but it's been inconsistent. This makes it a mixed bag because while they hit a good average, the fluctuations can be worrisome for some investors. 3. **Payout Ratio**: ODFL has a very low average payout ratio of 5.3569%, showing they reinvest most of their earnings back into the business, which is a good sign of financial health. 4. **Covered by Earnings**: ODFL's earnings easily cover their dividends, assuring sustainability. 5. **Covered by Cash Flow**: The dividends are well covered by their cash flow, with coverage improving in recent years, signaling good financial health. 6. **Stable Dividends**: Since starting dividends in 2015, ODFL has maintained stability without significant drops, good news for income-seeking investors. 7. **Dividends Paid for Over 25 Years**: ODFL has only been paying dividends since 2017, so they don't meet this long-term commitment criteria, which could be a downside for some. 8. **Stock Repurchases**: ODFL has a consistent pattern of stock buybacks, proving they’re committed to returning value to shareholders and showing financial strength.

Insights for Value Investors Seeking Stable Income

Old Dominion Freight Line (ODFL) looks quite strong in their dividend policy, though with some areas to consider. They are relatively new to paying dividends but have shown a promising increase since 2017. Their payout ratio is low, and dividends are well covered by earnings and cash flow, making the dividends appear sustainable. While their average dividend growth rate is high, some may be concerned about its inconsistency. If you're looking for long-term assured dividends, their short track record might not suffice. However, their robust financial health and commitment to shareholder value through consistent buybacks make ODFL worth considering. Overall, ODFL could be a good pick if you're okay with their relatively shorter dividend history but are impressed by their solid fundamentals and growth potential.

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 measure of a company's annual dividend payment compared to its stock price.

Old Dominion Freight Line's (ODFL) current dividend yield stands at 0.7895%, which is higher than the industry average of 0.67%. Analyzing the historical data, ODFL initiated its dividend payments in 2017 with a yield of 0.6082% and reached a peak of 1.1581% in 2018. Despite peaking in 2018, the fluctuation in yields has largely been influenced by rises and drops in stock prices. Specifically, while the dividend per share has exhibited a consistent upward trend (from $0.2667 in 2017 to $1.60 in 2023), the stock price also witnessed exponential growth from $43.85 in 2017 to $202.66 in 2023, suggesting robust capital appreciation. The gradual increase in dividend per share coupled with a rising stock price indicates a long-term positive trajectory for shareholder returns. ODFL's current yield, being above the industry average, underscores its commitment to returning value to its investors.

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

The dividend growth rate is a measure that indicates the annualized percentage rate of growth of a company's dividend payments.

Looking at the data provided for Old Dominion Freight Line (ODFL), their dividend growth rate shows a very inconsistent pattern. While there was a substantial increase in 2018 (78.7461%), it dropped significantly in 2019 (-4.909%) and then saw another rise in 2020, followed by fluctuating rates until 2023. An average dividend growth rate of 10.61% over 20 years is well above the 5% benchmark, which suggests on average they have grown dividends at a satisfactory rate. However, the significant inconsistency makes it less reliable. This trend can be considered mixed; while hitting a high average growth rate is positive, the volatility can be concerning for investors expecting steady dividend increases.

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

This criterion assesses if Old Dominion Freight Line's average payout ratio has remained below 65% over the last 20 years. A lower payout ratio often indicates financial stability.

Examining Old Dominion Freight Line's payout ratio data from 2003 to 2023, it is clear that the average payout ratio is exceptionally low at 5.3569%, well below the 65% benchmark. This trend is favorable as it demonstrates the company's conservative approach in distributing dividends. Evidently, until 2016, ODFL didn't distribute dividends at all, and even after initiation, the payout ratios remained minimal. This conservative dividend policy implies that ODFL has been reinvesting the majority of its earnings back into the business, potentially fueling growth and ensuring long-term financial health. As a result, the low payout ratio augurs well for financial stability and future growth prospects.

Dividends Well Covered by Earnings?

Dividends should not strain financial resources. Dividend cover >1 indicates sustainability.

Analyzing the data from 2003 to 2023, we observe a notable trend in Old Dominion Freight Line's (ODFL) EPS and dividends per share. Initially, up to 2014, there were no dividends declared, suggesting ODFL was either reinvesting all earnings back into the company or had other financial strategies in place. Post-2015, dividends were introduced and have been gradually increasing. For instance, the dividends per share were $0.2667 in 2017 and escalated to $1.6 in 2023. Despite the growing dividends, the EPS has consistently remained higher except for a minor dip in 2020. Since the dividend cover is above 1 post-2015—with values ranging from 0.071 to 0.282—the dividends are well-covered by the earnings, indicating sustainability and sound financial health. This is a positive trend, signifying that the company is generating more than enough profit to cover its dividend payments.

Dividends Well Covered by Cash Flow?

Examining whether dividends are well covered by cash flow is crucial as it helps gauge a company's ability to sustain and grow its dividend payments. Insufficient cash flow coverage may indicate potential financial instability.

From 2003 to 2013, Old Dominion Freight Line (ODFL) consistently showed either negative or zero values for both free cash flow and dividend pay-out, marking a period of limited or no dividend activity, which does not provide any protective margin for dividends. After 2014, there is a substantial improvement, especially in the period from 2017 to 2023, where the free cash flow coverage ranges from approximately 10.8% to 21.6%. In 2022, the coverage ratio stands at 14.67% and further increases to roughly 21.6% in 2023. This upward trend signifies that ODFL has maintained a prudent approach in ensuring that its dividends are well covered by free cash flow, reflecting a robust financial health. The gradual improvement improves investor confidence and indicates that ODFL's dividend payments have become sustainable.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends provide security for income-seeking investors by ensuring a continuous income stream. Avoiding reductions greater than 20% prevents significant income disruptions.

Over the past 20 years, Old Dominion Freight Line (ODFL) did not pay any dividends from 2003 to 2014. The consecutive years show a progressive increase in dividends without more than a 20% drop, reinforcing stability. This stability, especially from 2015 to 2023 with significant dividend increases, is beneficial for income-seeking investors.

Dividends Paid for Over 25 Years?

Determining whether dividends have been paid for over 25 years helps to assess the company's long-term commitment to returning value to shareholders.

Old Dominion Freight Line (ODFL) has been paying dividends only since 2017, as indicated by the initial dividend payment of $0.2667 per share. Given that dividends have only been distributed for the recent six years, this trend does not meet the criterion of having paid dividends for over 25 years. This could be a negative point for investors focusing on long-term income stability from dividends. However, the company has shown a substantial increase in its dividends per share, reaching $1.6 per share in 2023, reflecting a significant upward trajectory and a potential positive future potential for new dividend-income investors.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases indicate a company's willingness to return value to shareholders and signal financial strength.

The data for Old Dominion Freight Line (ODFL) shows a generally consistent pattern of stock repurchases over the last decade, with especially notable buybacks in years like 2014, 2015, 2016, 2017, 2018, 2019, 2021, 2022, and 2023. Particularly in 2021, they repurchased around 4.172 million shares compared to the prior year. This trend of buybacks is strong and reliable over the last 20 years, given the average repurchase ratio of approximately 4.36%. This indicates a robust approach by ODFL towards returning capital to shareholders, which is a positive signal for current and prospective investors. The consistent repurchases also suggest ODFL's management’s confidence in the company's long-term performance and profitability.