Last update on 2024-06-27

Pegasystems (PEGA) - Dividend Analysis (Final Score: 4/8)

In-depth dividend analysis of Pegasystems (PEGA), evaluating its performance and stability using an 8-criteria scoring system. Explore detailed insights and trends.

Short Analysis - Dividend Score: 4

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

The analysis of Pegasystems (PEGA) against an 8-criteria system reveals mixed results regarding the stability and performance of its dividend policies. Key findings include: a below-industry-average dividend yield that has trended downward over 20 years; erratic dividend growth with high volatility; a low average payout ratio indicating retained earnings; inconsistent dividends covered by earnings and by cash flow, raising sustainability concerns; stable dividends over the last 15 years but a relatively short history of 17 years compared to the 25-year standard; and no significant stock repurchases, suggesting limited commitment to share buybacks.

Insights for Value Investors Seeking Stable Income

Based on this mixed analysis, Pegasystems (PEGA) may not be the best choice for income-focused or conservative, long-term investors due to its low dividend yield, volatile growth, and concerns about dividend sustainability. However, the low payout ratio and stable dividends over the last decade could appeal to investors who prioritize growth reinvestment over income. Prospective investors should carefully consider their investment strategy and perhaps look into other companies with more stable and higher-yielding dividends for a reliable income stream.

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 a company's annual dividend payments as a percentage of its stock price. It shows how much income investors are getting for each dollar invested.

Pegasystems' (PEGA) current dividend yield of 0.2456% is less than the industry average of 0.79%. Over the past 20 years, PEGA's dividend yield has generally trended downward, starting from as high as 1.2573% in 2007 to its current value. Compared to average industry yields, which have fluctuated less dramatically, PEGA's yield indicates a less attractive return for income-focused investors. The trend is rather alarming because the decreasing dividend yield could suggest reduced profitability or less focus on returning value to shareholders. This is also corroborated by the fairly stagnant dividend per share over the past decade ($0.12). Furthermore, given PEGA's volatile stock prices, a higher yield would be expected to compensate for the investment risk, which currently it is not providing.

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

Criterion 1.1 examines the Dividend Growth Rate over the past 20 years and assesses whether it exceeds 5%.

Analyzing the given data indicates that Pegasystems (PEGA) has a highly erratic dividend growth history. Specifically, the dividend per share ratio saw significant fluctuations, with a high of 66.67% in 2007 and negative growth of -20% in 2008. Over the entire period, there were numerous years with 0% growth in dividends, notably from 2003-2006, from 2009-2012, and from 2016-2023. An average dividend ratio of 6.08% does technically exceed the 5% criterion, albeit marginally. However, the volatility and inconsistency suggest that this trend may not be sustainable or reflective of a reliably growing dividend. Stability and predictability in dividend growth are crucial for long-term investors seeking steady income. Thus, while the average meets the threshold, the underlying volatility presents significant concerns.

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

Criterion 1.2 checks if the company's average payout ratio is lower than 65% over the last 20 years. The payout ratio is the proportion of earnings paid out as dividends to shareholders. A lower ratio indicates that a company retains more of its earnings for growth and could signal financial stability and growth potential.

The average payout ratio for Pegasystems over the last 20 years is 24.45%, which is well below the 65% threshold. This is a positive trend as it suggests that Pegasystems has been consistently retaining a significant portion of its earnings, allowing for potential reinvestment into the business while still returning some value to shareholders. This conservative approach to payouts can be beneficial for long-term growth and indicates a measure of financial prudence.

Dividends Well Covered by Earnings?

This criterion examines whether a company's dividends are adequately covered by its earnings. A ratio above 1 indicates that the company's earnings are sufficient to pay its dividends, which is important for dividend sustainability. Conversely, a ratio below 1 signals potential issues in maintaining dividend payments without using other funds.

Earnings per Share (EPS) figures over the years for Pegasystems reveal variability, with negative earnings in years like 2009, 2018, 2019, 2020, and 2021. The most striking figure is from 2022 with a -$4.2171 EPS, indicating significant losses. For dividends, Pegasystems started paying dividends in 2006. The Dividends per Share covered by Earnings per Share also exhibit considerable fluctuations. The ratio exceeds 1 in 2006, demonstrating coverage, but in most years, it remains below 1, even dipping into negatives, notably indicating that earnings were insufficient to cover dividends. High EPS volatility combined with insufficient coverage is a worrying sign. Thus, from a dividend coverage perspective, Pegasystems' dividends are not well covered by its earnings, showing a predominantly negative trend in the past two decades.

Dividends Well Covered by Cash Flow?

This criterion evaluates whether a company's dividends are supported by its operating cash flow. It measures the proportion of free cash flow that is used to pay dividends, highlighting the sustainability of dividend payments.

Examining Pegasystems (PEGA)'s free cash flow and dividend payout amount from 2003 to 2023 reveals a mixed picture regarding the coverage of dividends by cash flow. Ideally, the dividend should be well-covered by the operational free cash flow, indicating financial stability and a sustainable dividend policy. In many years, particularly from 2003 to 2011 and in 2021 and 2023, the proportion of free cash flow devoted to dividends was generally low (below 50%), suggesting that dividends were comfortably covered by cash flow. However, certain years showed alarming trends: 2019 and 2020 had negative cash flow, suggesting dividends in those years were poorly covered and relied perhaps on financial reserves or external financing. The most concerning year is 2022 where the ratio is -0.753, indicating substantial cash flow issues. The vastly fluctuating FCF to dividend coverage ratio ranging from negative to positive values reflects inconsistent cash flow performance, raising concerns about the reliability and predictability of ongoing dividend payments. This inconsistency is a negative trend indicating potential risks for long-term dividend sustainability for Pegasystems.

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 dividends per share for Pegasystems (PEGA) over the last 20 years show a relatively stable trend, particularly over the last 15 years. Starting from 2006, the company has been consistent with its dividend payments and even saw gradual increases up to 0.12 per share by 2013 and has maintained this. There were no instances where the dividend per share dropped by more than 20% in any given year. This indicates a robust dividend policy, which is a positive sign for income-hungry investors. Stability in dividends highlights the financial health of a company and its commitment to returning value to shareholders. This meticulous consistency can build investor trust and attract a steady stream of long-term investors.

Dividends Paid for Over 25 Years?

Criterion 6 assesses whether a company has paid dividends for over 25 years. Long-term dividend payments indicate a company's financial stability and ability to generate consistent cash flows. It reflects the commitment to returning value to shareholders and can be a sign of mature, reliable operations.

Pegasystems has been paying dividends since 2006, starting with a modest $0.045 per share and gradually increasing to $0.12 per share by 2023. Therefore, the company has not met the 25-year criterion yet, having only a 17-year track record of dividends. This shorter history may be seen as a disadvantage for very conservative income-focused investors who prioritize a long history of payments. Nevertheless, the consistent and growing dividends over the past 17 years suggest a positive trend in financial health and a strong commitment to shareholder returns.

Reliable Stock Repurchases Over the Past 20 Years?

Explain the criterion for Pegasystems (PEGA) and why it is important to consider

Reliable stock repurchases over the past 20 years refers to the consistency with which a company buys back its shares. Stock repurchases can signal to investors that the company believes its stock is undervalued or that it has excess cash. Consistent repurchases can lead to a decrease in the number of outstanding shares, boosting earnings per share (EPS) and potentially stock prices. For Pegasystems, the given data indicates share numbers fluctuated slightly but didn't show a significant downward trend related to consistent buybacks. The average repurchased rate 0.7841 suggests a moderate activity but not significant to call it a reliable repurchase trend. Only 4 years show actual buybacks out of 20 which is not a strong indicator for a stable repurchase strategy. This trend is not strongly favorable for investors relying on repurchase benefits.