Last update on 2024-06-27

PACCAR (PCAR) - Dividend Analysis (Final Score: 6/8)

Discover PACCAR's dividend performance with a final score of 6/8. Learn about its strong yield, growth, payout ratio, and coverage by earnings and cash flow.

Short Analysis - Dividend Score: 6

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

PACCAR (PCAR) has a strong dividend yield of 4.342%, much higher than the industry average of 1.67%. Its average dividend growth rate over the last 20 years is about 18.17%, which is impressive. The average payout ratio of 60.09% is below the 65% threshold, indicating it retains enough earnings for growth. Dividends are usually well-covered by earnings but sometimes less so by cash flow, showing some variability. Dividends have been stable, with no drops over 20%, and they’ve been paid for over 25 years. There's been a consistent effort in stock repurchases to enhance value.

Insights for Value Investors Seeking Stable Income

PACCAR appears to be a strong choice for dividend investors due to its high yield, growth rate, and long history of payments. However, potential investors should be mindful of the occasional variability in dividend coverage by cash flow. Continuous monitoring is advised, but overall, it’s worth further consideration.

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 represents the annual dividend payment as a percentage of the stock price, and it is crucial as it indicates the cash return a shareholder receives from their investment.

PACCAR's current dividend yield of 4.342% significantly exceeds the industry average of 1.67%, marking it as an attractive option for income-seeking investors. Over the last 20 years, PACCAR's dividend yield has constantly fluctuated but remained consistently higher than the industry average except for the financial crisis period in 2008-2009. Even during the economic downturn, while the yield dropped to 1.4888% in 2009, it rebounded swiftly. The dividend per share has also seen a steady increase, with a notable rise from approximately $0.61 in 2003 to $4.24 in 2023. This is paired with a consistent appreciation in stock price, signaling the firm's strong ability to grow dividends in line with its stock value. Overall, this trend suggests that PACCAR is both a reliable and growing provider of dividends, significantly outperforming the industry norm.

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

The Dividend Growth Rate is a measure of how much a company's dividend payments per share have grown over a specific period. A growth rate higher than 5% indicates a company's profitability growth and commitment to shareholder returns. Long-term trends are particularly significant.

PACCAR (PCAR) has shown fluctuations in its dividend growth rate over the past 20 years with values ranging from -50.2044% to 100.231%. Despite few negative growth years, PACCAR sustained an average dividend growth rate of approximately 18.17%, well above the 5% benchmark. This suggests that PACCAR has demonstrated strong profitability and a solid commitment to returning value to shareholders over the long term, which is a positive indicator for existing and potential investors.

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

The average payout ratio represents the percentage of earnings distributed to shareholders in the form of dividends. A payout ratio lower than 65% is considered healthy as it indicates a company is retaining enough of its earnings to reinvest in growth and sustain its operations.

The average payout ratio for PACCAR (PCAR) over the last 20 years is 60.09%. This is below the 65% threshold, indicating a relatively balanced approach to dividend payments and earnings retention. Over the years, the payout ratio has varied, with a notable spike to 176.07% in 2009 likely due to financial crises and reduced earnings but higher dividend rates. Generally, maintaining an average below 65% is a positive trend, as it shows PACCAR's commitment to rewarding shareholders while still ensuring sufficient reinvestment for future growth.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings refers to the company's ability to pay out dividends from its net income, highlighting sustainability and financial health. A payout ratio under 0.5 is generally conservative and indicates a well-covered dividend.

Over the past 21 years, PACCAR's payout ratio has varied notably. For most of the years observed, the ratio remained below 0.5, indicating an alignment with a conservative payout strategy: e.g., 2003 at 0.459, 2004 at 0.533, 2005 at 0.438, and so forth. This indicates that PACCAR has usually well-covered dividends. However, in years like 2009 (1.761) and periods from 2016 onwards, ratios tend to be higher, exceeding the 0.5 mark occasionally. The notably high payout ratio in 2009 showcases an anomaly, likely due to the economic crisis. On a broad scale, the trend is a mixed bag - leans positive on conservative coverage but raises flags for several periods. Continued monitoring and stability in earnings are essential to ensure sustained dividend coverage.

Dividends Well Covered by Cash Flow?

Dividends well-covered by cash flow is a criterion that assesses if a company's free cash flow is sufficient to cover its dividend payments. It is important because it indicates financial health and sustainability of dividend payments.

The dividend coverage ratio has varied over the years for PACCAR (PCAR). A ratio above 1 indicates dividends are well-covered. In years such as 2004, 2005, 2013, 2014, and 2017, the ratio exceeded 1, showing strong coverage. Conversely, ratios below 1 in years like 2003, 2006, 2008, and 2011-2012 suggest weaker coverage and potential unsustainability. However, overall trends show good performance in recent years, especially with strong ratios from 2018 to 2021. The volatile nature from year to year warrants monitoring, but the drastic improvements up to 2023 are promising, moving the coverage ratio closer to stability. This trend appears moderately favorable, reflecting improving financial health but indicating past instability.

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.

Examining the provided data for PACCAR (PCAR) over the last 20 years, it appears that the dividend per share exhibited fluctuations but did not experience a drop of more than 20% in any given year. For instance, while there were periods of decline, such as from 2008 to 2009 (from $0.82 to $0.54) or from 2016 to 2017 (from $2.32 to $1.56), these drops stay below the 20% threshold, suggesting historical stability. This is critical for income-seeking investors as it indicates a reliable income stream. Notably, the dividend per share has generally grown over this period, hitting a significant peak of $4.24 in 2023. This stability in dividend payments demonstrates PACCAR's commitment to returning value to shareholders consistently, which is a positive signal.

Dividends Paid for Over 25 Years?

This criterion examines whether PACCAR has paid dividends for over 25 years, which shows consistency and reliability in providing returns to shareholders.

Across the years from 1998 to 2023, PACCAR has consistently paid dividends, presenting a dividend per share range from $0.4346 in 1998 to $4.24 in 2023. The steady and even increasingly higher dividend payments reflect PACCAR's commitment to returning value to its shareholders over the long term. This consistency not only demonstrates the company's financial stability but also ensures investor confidence. Notably, PACCAR continued to issue dividends even during economically challenging periods, such as the 2008 financial crisis and the COVID-19 pandemic in 2020. This resilience and the ability to sustain shareholder returns for over 25 years make the trend highly favorable, indicating sound financial health and an enduring business model.

Reliable Stock Repurchases Over the Past 20 Years?

What does reliable stock repurchases entail and why this matters for PACCAR's dividend strategy

Stock repurchase, or buyback, indicates that the company buys its own outstanding shares to reduce the number of shares available on the open market. For PACCAR, reliable stock repurchases over the past 20 years suggest a consistent strategy aimed at returning value to shareholders. It is a crucial element to consider as it may impact factors like earnings per share (EPS) and the stock's market price, enhancing shareholder value.