Last update on 2024-06-28

Organon (OGN) - Dividend Analysis (Final Score: 6/8)

Detailed analysis of Organon (OGN)'s dividend policy with an 8-criteria scoring system. Final Score: 6/8. Explore performance & stability for informed investment.

Short Analysis - Dividend Score: 6

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

Organon (OGN) was assessed by an 8-criteria scoring system to evaluate its dividend policy performance. With a dividend score of 6, there are both positives and negatives. - **Dividend Yield**: OGN's dividend yield is 7.767%, much higher than the industry average, but this might be due to a falling stock price. - **Dividend Growth Rate**: The company hasn't shown consistent growth, making it unreliable for long-term investors. - **Payout Ratio**: With low payout ratios in recent years (27.94% in 2023), there is room for growth and reinvestment. - **Coverage by Earnings**: Dividend coverage by earnings is improving but still not optimal. - **Coverage by Cash Flow**: Mixed results, with recent improvements, yet still room for better consistency. - **Dividend Stability**: Started paying dividends in 2021 but hasn't shown long-term stability. - **Duration**: OGN has not paid dividends for over 25 years, posing a concern for long-term stability. - **Stock Repurchases**: No reliable stock repurchase trend, indicating value not consistently returned to shareholders. Overall, OGN's high dividend yield and low payout ratio are positives, but lack of long-term stability and consistency in growth are concerns.

Insights for Value Investors Seeking Stable Income

Based on the analysis, Organon has some attractive features like a high dividend yield and low payout ratio, suggesting potential for future growth. However, the inconsistent growth rate and lack of long-term stability are red flags. For a cautious investor, this stock might not be ideal for a dependably growing income. If you're willing to take a risk for high yield and can tolerate instability, it might be worth further investigation. Otherwise, consider more stable dividend-paying companies.

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?

Proportion of dividends paid out relative to a company's share price

Organon (OGN) has consistently increased its dividend yield, reaching 7.767% in 2023. This yield significantly surpasses the industry average of 3.29%. The upward trend, beginning from 2021 after a series of zero yield years, indicates a focused effort to return value to shareholders. Considering the decline in stock price from $30.45 in 2021 to $14.42 in 2023, it's clear that high dividends are being paid despite the decreased valuation, which may concern investors looking for growth. While a higher yield is generally attractive, the sharp rise might hint at underlying challenges or a strategic shift to prioritize income distribution over capital appreciation.

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

The dividend growth rate indicates how rapidly the organization's dividend payouts have increased over time. A higher rate is a signal of prosperity.

Based on the Dividend Ratio data supplied between 2017 to 2023, Organon shows no consistent dividend growth. With dividends at zero until 2021, peaking at 100 in 2022, and dropping back to zero in 2023, the pattern does not meet a continuous 5% growth threshold. The average of 14.29% does not mask this inconsistency, rendering the growth trend unsustainable and unfavorable for a long-term dividend growth strategy.

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

The payout ratio indicates the proportion of earnings a company pays to its shareholders in dividends. A ratio lower than 65% suggests financial stability and room for growth.

The given data shows that, over the last seven years, Organon (OGN)'s payout ratio has been particularly low, with early years from 2017 to 2020 having a ratio of 0%, indicating no dividends were paid out during these years. In more recent years, the payout ratios were 10.51%, 31.03%, and 27.94% for 2021, 2022, and 2023, respectively. With an average payout ratio of 9.93%, which is well below the 65% threshold, this trend suggests that Organon has significant room for future dividend growth and reinvestment into the company. This is a positive indicator for long-term investors looking for both income and capital appreciation.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings means that a company which is consistently able to pay dividends from its net income is considered financially healthy. This ensures sustainability of dividend payments.

From 2021 to 2023, Organon's Dividend per Share versus Earning per Share ratios were 0.11, 0.31, and 0.28, respectively. While the figure for 2021 was below the general threshold (0.5-0.75 considered safe), improvement in 2022 and 2023 suggests rising dividend coverage. This indicates better sustainability, although still below optimal coverages. This trend is positive but warrants cautious optimism since increasing payout ratios must align with stable to increasing earnings.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow show that the company generates sufficient cash to support its dividend payments. It's a sign of financial health and sustainability.

Examining Organon's free cash flow (FCF) and its dividend payout amount over the time period from 2017 to 2023, we can see substantial fluctuations. Notably, the ratio of dividends covered by cash flow ranges from approximately 0.04 to 0.67. For instance, in 2018, the coverage was a mere 0.04, indicating that the company's dividends were minimally backed by its cash flow, revealing high risk and unsustainability. The situation improves marginally over the next few years but remains less than optimal. By 2022, we see a dramatic increase with a coverage ratio of 0.67, suggesting a robust increase in the ability to cover dividends with available cash flow. However, 2023 sees a slight dip to 0.55. The upward trend in the recent years is positive and indicates improving financial stability, yet there is still room for improvement in ensuring dividends are well-covered by cash flow on a consistent basis.

Stable Dividends Since the Company Began Paying Dividends?

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.

The provided data reveals that Organon (OGN) did not pay dividends prior to 2021, and the dividend per share had increased from $0.56 in 2021 to $1.12 in 2022 and remained stable in 2023. This shows a significant increase, but the very short history of dividend payments does not provide a comprehensive view of long-term stability. Furthermore, since the firm did not pay any dividend before 2021, it does not meet the criterion of stability over the past 20 years. Therefore, it could be concluded that the trend cannot be considered favorable for those seeking stable dividend income over an extended period.

Dividends Paid for Over 25 Years?

Dividends Paid for Over 25 Years evaluates whether a company has consistently paid dividends over a long period, indicating financial stability and shareholder commitment.

Organon (OGN) has paid dividends per share starting from 2021. Specifically, the dividends per share for 2021 were $0.56 and for both 2022 and 2023 were $1.12. This shows an initiation and increase in dividend payments, but a history of only 3 years, far from the 25-year benchmark. While a rising trend is positive, it is too early to conclude long-term stability. Therefore, Organon does not meet this criterion.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases indicate that a company is consistently returning value to shareholders by reducing the number of outstanding shares, which can lead to an increase in earnings per share.

Organon (OGN) shows no reliable stock repurchase trend over the past 20 years. Since its numbers of shares have overall increased from 2017 to 2023, deviating from 0 in 2018 to 255,239,000 in 2023, it clearly reflects that the company did not execute any repurchase scheme. This increase signifies a dilution of shares which is a negative trend for shareholders as it potentially reduces earnings per share. The average repurchase of 0.1385 highlights almost negligible buyback activity. Thus, it is not favorable.