Last update on 2024-06-27

Patterson Companies (PDCO) - Dividend Analysis (Final Score: 6/8)

In-depth analysis of Patterson Companies (PDCO) dividend performance using an 8-criteria scoring system, showcasing strong yields and financial health.

Short Analysis - Dividend Score: 6

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

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.

Patterson Companies (PDCO) boasts a dividend yield of 3.6555%, substantially higher than the industry average of 0.98%. This signifies strong dividend returns to shareholders, indicating a good income investment. Historically, the trend shows an increase from practically 0% in 2003 up to current levels, often staying above the industry average, especially surging from 2018 onwards when it hit 5.2899% in 2018. Although the yield has declined slightly since 2018, it has stabilized around 3.5%, consistently outperforming the industry, which reflects well on its dividend policy. This is particularly attractive to investors seeking regular income, demonstrating financial health and commitment to returning capital to shareholders.

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

This criterion measures the growth of dividends per share over a significant period, which is crucial as it indicates the company's ability to increase shareholder returns and its financial health. A growth rate higher than 5% suggests consistent financial performance and positive investor sentiment.

The provided dividend growth rate data for Patterson Companies (PDCO) over the past 20 years indicates significant variability in the growth rates. Though there were years with notable increases, such as 53.33% in 2011, 58.33% in 2014, and 36.17% in 2017, there were also years of decline, most notably -29.41% in 2013 and -18.75% in 2018. The overall average dividend growth rate stands at approximately 8.09%, which does exceed the 5% threshold, suggesting a good trend overall. However, the volatility in year-over-year growth rates hints at an inconsistent distribution strategy, which might cause potential concerns among investors for reliable future returns.

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

The Payout Ratio is a crucial measure of how much of a company's earnings are being returned to shareholders in the form of dividends. A payout ratio under 65% is considered sustainable in the long term.

Based on the provided data, Patterson Companies (PDCO) has had an average payout ratio of 28.945% over the last 20 years, which is well within the sustainable range of under 65%. This indicates a healthy trend overall, with the company retaining a substantial portion of its earnings while consistently paying dividends. However, it is important to note the significant volatility in individual years. For example, the payout ratio peaked at 116.2531% in 2019—a level that is unsustainable—before reverting back to more manageable levels. The negative payout ratio in 2021 (-16.6405%) also deserves scrutiny, likely indicating a year of net loss. Despite some fluctuations, the long-term trend is positive and indicates prudent financial management overall.

Dividends Well Covered by Earnings?

Dividends being well covered by earnings means that the company's earnings per share (EPS) are sufficient to cover its dividend payouts. This indicates the company's profitability and financial stability.

Examining the years 2003 through 2023, EPS for PDCO remained positive except for the year 2020 where it saw a substantial dip to negative values, particularly at -6.2498. Consequently, for most periods, dividends per share have been well covered by earnings, especially impressive before 2020 with EPS routinely outstripping dividends. For instance, in 2011, the coverage was at 0.243, indicating strong earning capacity against dividends paid. However, the year 2020 demonstrates diminished coverage, with a negative value showcasing that dividends paid out were not supported by earnings, highlighting a negative trend of concern during that specific period. Post-2020, EPS recovered to positive values, marking improvement and renewed coverage of dividends (0.637 in 2021 and 0.497 in 2022). Thus, general trends show stability but sporadic year-to-year volatility.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow means that the free cash flow generated by the company is sufficient to cover the dividend payments. This is crucial as it indicates the sustainability of the dividend policy.

A consistent coverage ratio above 1.0 is ideal as it indicates that the company generates enough cash to cover its dividend payments comfortably. For Patterson Companies (PDCO), we observe a concerning trend. Starting from 2016, the coverage ratio has seen a significant decline. In recent years, negative values suggest that not only is the free cash flow insufficient to cover dividends, but the company is actually consuming cash reserves or funding dividends through other means. For instance, in 2023, the coverage ratio is -0.1237, which implies significant strain on liquidity and sustainability of future dividend payments. This trend is highly negative and indicates potential red flags for investors depending on dividend income.

Stable Dividends Since the Company Began Paying Dividends?

Evaluating the stability of dividends over the past 20 years is crucial. It helps determine the reliability of income for investors who rely on dividend payments. A stable dividend policy signals a company’s strong financial health and commitment to returning value to shareholders.

Reviewing the data for Patterson Companies (PDCO) from 2003 to 2023, there were no dividend payouts for the initial seven years. The dividend payments commenced in 2010 with a payout of $0.30. From this point onwards, the dividends show a general upward trend, reaching a peak of $1.28 in 2017. Upon detailed evaluation, there isn't a year where the dividend per share dropped by more than 20%. The only noticeable decline occurred between 2017 and 2018 when the dividend per share dropped from $1.28 to approximately $1.04, which equates to a 18.75% drop, not reaching the 20% threshold. This trend demonstrates a relatively stable dividend policy, fostering confidence among income-seeking investors as fluctuations remained controlled and did not breach the critical 20% drop for any single year. Therefore, for dividend stability, Patterson Companies holds a positive footing.

Dividends Paid for Over 25 Years?

Examine if the company has a consistent record of paying dividends for over 25 years and why this consistency would be significant.

From 1998 to 2023, Patterson Companies (PDCO) has dividends per share data available starting only in 2010 when it initiated dividend payments. In the years that followed, PDCO increased its dividend payouts steadily until about 2016, reaching a peak of $1.28 per share in 2017. Post-2017, dividends appear to stabilize at $1.04 per share. However, the company lacks a full 25-year history of dividends, making it challenging to establish long-term consistency. Although the recent stability of dividends is commendable, the absence of data prior to 2010 and fluctuations before 2017 may pose concerns for those seeking long-term reliability. Thus, the trend indicates some positive aspects, such as increased payouts and recent stability, but does not fully meet the criterion of a 25-year continuous dividend payment. This mixed trend could be seen as a cautious indicator for long-term dividend investors.

Reliable Stock Repurchases Over the Past 20 Years?

Share buybacks can be a key indicator of a company's confidence in its own financial stability and growth prospects.

Over the last 20 years, Patterson Companies (PDCO) has engaged in substantial share repurchases during 12 of those years, particularly in periods between 2007-2018 and resuming in 2023. This indicates a generally stable trend in repurchasing shares, reflecting the company's confidence in its performance. However, it's important to note certain fluctuations: for example, share counts increased slightly from 2019 to 2021 and marginally dropped in 2020. The average repurchase amount being negative (-1.6543) indicates a decline, showing PDCO’s continuous commitment to reducing the share count over an extended period. Overall, this trend is favorable, illustrating PDCO’s ability to return value to its shareholders consistently while maintaining a significant share buyback program.