Last update on 2024-06-27

Otis Worldwide (OTIS) - Dividend Analysis (Final Score: 6/8)

Comprehensive analysis of Otis Worldwide (OTIS) dividend policy. Scored 6/8 on performance and stability using an 8-criteria system. Learn more.

Short Analysis - Dividend Score: 6

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

Otis Worldwide (OTIS) has been evaluated using an 8-criteria scoring system for its dividend performance and stability, obtaining a score of 6 out of 8. Key findings include a slightly below industry-average dividend yield (1.4642%) that is steadily increasing, which is positive. The dividend has not been paid for 25 years, and dividends only started in 2020, which means it fails the historical stability criterion. However, the payout ratio is comfortably below 65%, showing strong reinvestment, and coverage by earnings and cash flow is improving despite being relatively low. The company has increased dividends consistently since its inception, but more historical data is needed to assert long-term growth. Lastly, Otis has shown reliable stock repurchase behavior in recent years, indicating investor value.

Insights for Value Investors Seeking Stable Income

Given the consistent rise in dividend yield, improving payout ratios and earnings coverage, and reliable stock repurchase trends, Otis Worldwide presents a promising prospect for investors. However, the lack of a 25-year dividend history and limited data on long-term dividend growth require cautious optimism. For long-term dividend stability, further observation and expanded historical analysis are suggested. Hence, it may be worth adding OTIS to your watchlist, with a consideration for more diversified strategies.

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 financial ratio that shows how much a company pays out in dividends each year relative to its stock price. It is essential for investors seeking income over capital gains.

Otis Worldwide's (OTIS) current dividend yield is 1.4642%, slightly below the industry average of 1.57%. However, this trend shows a consistent increase in its dividend yield since 2020 when it was 0.8882%. By 2023, Otis's dividend yield increased to 1.4642%, reflecting an improvement over time, even if slightly below the industry average. Considering the stock price closed at $89.47 in 2023, the higher dividend per share of $1.31 demonstrates the company’s continual commitment to returning value to its shareholders through dividends. While being just below the industry average may not be ideal, the consistent upward trend in dividend yield is positive for dividend-seeking investors.

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

The Dividend Growth Rate measures the annualized percentage rate of growth of a company's dividend over time. A growth rate higher than 5% indicates strong financial health and shareholder value growth.

Reviewing the provided Dividend Ratio values from 2017 to 2023, we observe that dividends started disbursing in 2021 and peaked before declining slightly. Given the incomplete data (as dividends started from 2021), it's challenging to calculate a 20-year growth rate. However, recent trends indicate serious growth. Dirt noted Dividend starting from 0 and reaching above 18 in a short span signifies a substantial rise, dashed by decrease post unprecedented initial growth. To concrete a trend, more longitudinal data is critical. Currently, dividend growth appears positive but not uniformly sustainable.

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

Assessing the average payout ratio over the last 20 years is crucial as it indicates the proportion of earnings paid out as dividends to shareholders. A payout ratio consistently below 65% suggests that the company is reinvesting a significant portion of its earnings back into the business for growth and sustainability.

The data provided shows that the payout ratio for Otis Worldwide (OTIS) has been gradually increasing from 28.6889% in 2020 to 38.331% in 2023. Given that the average payout ratio over this period is approximately 19.4%, it is well below the 65% threshold. This trend is a positive signal for investors, as it implies that the company is retaining a significant portion of its earnings for reinvestment and growth while still rewarding shareholders. The gradual increase also shows a cautious approach to dividend distribution, ensuring that the company's financial health is not compromised while maintaining investor confidence.

Dividends Well Covered by Earnings?

This criterion evaluates whether a company’s dividends are adequately covered by its earnings. A higher coverage ratio indicates better sustainability of dividend payments.

The trend line for Otis Worldwide (OTIS) suggests a growing capability to cover its dividends with its earnings. In 2020, the dividends per share were covered by earnings per share by 0.2869 times, which indicates a marginal coverage. However, this increased to 0.3158 times in 2021, 0.3721 times in 2022, and 0.3833 times in 2023. This upward trend reflects positively for investors since it implies the company's strengthening ability to cover its dividends through its earnings. Despite the relatively low absolute coverage ratios, the consistent year-on-year improvement signals strong financial health and a sustainable dividend policy. Investors should consider this a good trend but remain vigilant, given the low absolute coverage figures. The improvement from 2020’s coverage ratio of 0.2869 to 2023’s coverage ratio of 0.3833 is a significant advancement.

Dividends Well Covered by Cash Flow?

Explain the criterion for Otis Worldwide (OTIS) and why it is important to consider

Dividends being well-covered by cash flow ensure that a company is capable of sustaining its dividend payouts without jeopardizing its financial stability. For Otis Worldwide, assessing this criterion involves examining the percentage of free cash flow (FCF) allocated towards dividend payments. A higher proportion indicates a potential strain on liquidity, while a lower percentage suggests a healthier cushion for the business. The historical data from 2017 to 2023 shows the following percentage of free cash flow being used for dividend payments: 19.74%, 18.87%, 19.64%, 20.05%, 24.65%, 32.18%, and 36.20% respectively. A consistent increase in the percentage from 19.74% in 2017 to 36.20% in 2023 demonstrates growing dividend commitments over time. While this trend signifies robust shareholder returns, it's crucial to note the higher usage of cash flow for dividends in recent years (2021-2023), climbing over the 30% mark. This is relatively reasonable but indicates a trend to monitor as it reduces the liquidity cushion. This increasing trend could raise concerns if it continues without parallel growth in FCF, stressing the importance of Otis Worldwide maintaining sufficient cash flow generation to cover its commitments. Hence, the current trend can be seen as moderately positive but necessitating vigilant monitoring.

Stable Dividends Since the Company Began Paying Dividends?

The stability of dividends over the past 20 years gauges the company's commitment to returning value to its shareholders. For income-focused investors, consistent dividends without substantial cuts indicate financial health and predictability.

Over the past seven years, the dividend per share history for Otis Worldwide (OTIS) reveals significant inconsistencies. For the years 2017 through 2019, the dividends per share were $0, reflecting no dividend payouts. However, starting in 2020, dividends were initiated and have shown an upward trend from $0.6 in 2020 to $1.31 in 2023. While the increasing trend since 2020 is positive, the absence of dividends before 2020 and the false premise of a 20-year stability requirement deem this trend unfavourable for this specific criterion. The consistency and shielding from a 20% drop can't be validated due to the lack of historical payout data, thus failing the stability test required for long-term income certainty.

Dividends Paid for Over 25 Years?

The criterion assesses whether Otis Worldwide has a consistent track record of paying dividends for over 25 years to gauge stability and long-term commitment to shareholder returns.

Reviewing the provided data, Otis Worldwide (OTIS) does not meet the criterion of paying dividends for over 25 years. The company started paying dividends in 2020 ($0.60 per share), which has since increased annually to $1.31 per share in 2023. While the recent trend of increasing dividend per share is positive and underscores the company's growing profitability and shareholder value focus, Otis Worldwide's short record of only four years of dividend payments is insufficient to conclude long-term stability and commitment based solely on this criterion. Investors looking for companies with a long-term dividend payment history may need to consider other factors or companies.

Reliable Stock Repurchases Over the Past 20 Years?

Assessment of stock repurchase reliability over the past 20 years focuses on a company's commitment to consistently returning value to shareholders. This measure, important for confident investor sentiment, reflects stable financial health and prioritization of shareholder value.

Otis Worldwide (OTIS) has demonstrated a pattern of reliable stock repurchase activities, particularly in recent years. Analyzing the years 2017 to 2023, the numbers indicate a reduction in shares outstanding from 436.4 million to 411.4 million. The years highlighted for reliable repurchases include 2018, 2021, 2022, and 2023, during which share reductions were significant. The overall average repurchase rate of -0.9751 over the past 20 years (though specific historical data beyond 2017 is not provided) suggests consistent efforts to repurchase and reduce share numbers, beneficial in enhancing shareholder value. This trend bodes well for a long-term investor's trust in OTIS's share value appreciation strategy.