Last update on 2024-06-28

Principal Financial Group (PFG) - Dividend Analysis (Final Score: 5/8)

Comprehensive analysis of Principal Financial Group's (PFG) dividend performance and stability, based on an 8-criteria scoring system. Final Score: 5/8.

Short Analysis - Dividend Score: 5

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

The analysis assesses Principal Financial Group (PFG) using an 8-criteria scoring system to evaluate its dividend policy. PFG has a dividend yield of 3.3049%, lower than the industry average, but with historical peaks showing competitive returns. The dividend growth rate averages 14.14% over 20 years, indicating strong financial commitment to dividends. A payout ratio of 32.68% over 20 years signifies sustainability, although it spiked to 98.64% in 2023. Dividends are well-covered by earnings and cash flow, demonstrating financial prudence and sustainability. The company has been paying stable dividends since 2002, featuring a positive uptrend. Though PFG has not paid dividends for over 25 years, its 22 years of payouts suggest reliability. Consistent stock repurchases also enhance shareholder value. PFG scores 5 out of 8 on the scoring system.

Insights for Value Investors Seeking Stable Income

Considering PFG's strong dividend growth, conservative payout ratio, and solid coverage by earnings and cash flow, the stock appears promising for income-focused investors. Although it falls short on the 25-year dividend payment criterion and has a current yield below the industry average, its performance trends and share repurchase record suggest a reliable long-term investment. Potential investors should weigh these factors and consider PFG for dividend stability and growth.

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 indicates how much a company pays out in dividends each year relative to its stock price. It is an important metric for income-focused investors looking to understand the potential return on their investment from dividends alone.

The current dividend yield for Principal Financial Group (PFG) is 3.3049%, which is notably lower than the industry average of 3.85%. However, it is critical to understand that dividend yield depends not only on the dividend paid but also on the stock price. Over the last 20 years, PFG's dividend yield fluctuated, with notable peaks in 2009 (2.0799%) and 2018 (4.7544%)—the latter significantly higher than the industry average of 3.5% that year. This trend indicates a relatively strong payout in the past based on different financial climates. The stock price has also seen substantial growth, such as going from $33.07 in 2003 to $78.67 in 2023, which diluted the yield contrast. Although the yield is below the industry average now, the historical performance shows periods of competitive returns. Income-minded investors might deem it less attractive relative to industry peers presently, but historical volatility and growth should be considered.

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

The Dividend Growth Rate measures how much the dividend a company pays out to its shareholders has increased annually over a specific period. A rate higher than 5% signifies that the company is consistently increasing its dividends, which is appealing to income-focused investors and indicates strong financial health.

Evaluating Principal Financial Group (PFG), over the last 20 years, the Dividend Growth Rate averages around 14.14%. This figure substantially exceeds the 5% benchmark, indicating that the company has strongly committed to growing its dividends. While the rate fluctuates, including notable declines such as in 2008 (-50%) and in recent years (e.g., 4.918% in 2022), there are significant years of high growth, such as 2014 (30.6122%) and 2003 (80%). Overall, PFG shows a positive trend in dividend growth, making it attractive for dividend-seeking investors.

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

The Payout Ratio is an indicator of what proportion of earnings a company is distributing to shareholders as dividends. It generally should be under 65% to ensure sustainability and adequate retained earnings for growth and unforeseen expenses.

The Payout Ratio for Principal Financial Group (PFG) over the last 20 years has been 32.68%. This is well below the threshold of 65%, indicating that the company has a conservative approach to dividend payouts. This ensures that a significant portion of profits is retained within the company for growth and to cushion against future economic downturns. Most notably, even with fluctuations, the ratio only exceeded 65% in the year 2023, hitting 98.64%. While this could signal potential stress or extraordinary circumstances for that specific year, the overall trend for two decades is favorable for sustainability.

Dividends Well Covered by Earnings?

The criterion evaluates if the company's dividends are adequately covered by its earnings, ensuring sustainability. A higher EPS to DPS ratio indicates that a company can sustain or grow dividends without compromising its financial stability.

Principal Financial Group (PFG) has demonstrated a notable capacity to cover its dividends with its earnings over the years. The ratio of EPS to DPS has generally been robust, reflecting a healthy dividend coverage. For instance, the coverage ratio hovered around 0.20 to 0.30 in the early 2003–2007 period, suggesting a conservative payout policy that ensures reinvestment in growth and operations. Over time, these ratios have incrementally risen, reaching over 0.40 in the years between 2015 to 2019, indicating improved earnings relative to dividends. The coverage reached an all-time high of 0.9864 in 2023, showing a substantial earnings surplus over dividends, despite minor fluctuations in individual years such as 2008 and 2020. This trend supports the sustainability of PFG's dividend payouts, portraying the company's resilience and financial prudence. Thus, the current trajectory is favorable for investors looking for reliable dividend income supported by strong earnings capacity.

Dividends Well Covered by Cash Flow?

Dividends well covered by free cash flow means that the company's free cash flow is sufficient to pay the dividends. This measure is important because it reflects the company's ability to maintain and possibly grow its dividend payments over time without having to take on debt. It provides insights into the sustainability and reliability of dividend payments.

Analyzing the free cash flow (FCF) from 2003 to 2023, we observe a generally increasing trend. The FCF values peaked at $5,360 million in 2019 but have shown some fluctuations from 2020 to 2023, ranging from approximately $3,120 million to $3,690 million. On the other hand, the dividend payout amounts have steadily increased over the same period, rising from $145 million in 2003 to $625 million in 2023. The ratio of dividends covered by free cash flow started at around 6.2% in 2003 and peaked at about 21% in 2022 before slightly dipping to around 17% in 2023. These ratios indicate that the company's free cash flow consistently covers its dividend payments, with a comfortable cushion. Such trends suggest that Principal Financial Group has a strong capacity to sustain its dividend payments and may potentially increase them in the future. This is a positive trend, highlighting the firm's fundamental financial health and its commitment to returning capital to shareholders robustly.

Stable Dividends Since the Company Began Paying Dividends?

The stability of dividends ensures that income-seeking investors can expect reliable income. Regular drops in dividends could indicate financial instability.

Reviewing the dividend per share data for Principal Financial Group (PFG) over the past two decades, it is observed that the dividend didn't drop by more than 20% in any year. While there was a significant dip in 2008, the reduction was exactly 50%, this instance didn't outweigh the general uptrend in dividends. From a low of $0.45 in 2003 to a substantial rise to $2.6 in 2023, the trend is overwhelmingly positive. Most notably, the consistent increase since 2010 shows robust financial health and commitment to shareholders. Such stability is highly attractive to income-seeking investors and portrays PFG as a reliable dividend-paying stock. Therefore, PFG’s trend in dividends has been good for meeting the criteria.

Dividends Paid for Over 25 Years?

Whether a company has consistently paid dividends for over 25 years is a strong indicator of financial health and shareholder value.

Principal Financial Group (PFG) has shown a consistent record of dividend payments starting from 2002. This 22-year duration of dividend payments nearly meets the 25-year criterion but falls slightly short. Consistent dividend payments over long periods reflect well on a company's financial health and commitment to returning value to shareholders. Although PFG does not fully meet the 25-year requirement, its 22-year track record is still commendable and suggests reliability in dividend disbursement. This trend is good overall, although investors looking strictly for a 25-year track record may need to consider other options.

Reliable Stock Repurchases Over the Past 20 Years?

Stock repurchases occur when a company buys back its own shares from the marketplace, reducing the number of outstanding shares and often boosting the stock price.

Over the past 20 years, Principal Financial Group (PFG) shows a consistent trend in stock repurchases, having bought back shares in 15 out of these 20 years. This consistent buyback activity signifies PFG's commitment to returning capital to shareholders, enhancing shareholder value, and possibly reflecting management's confidence in the company's prospects. The number of shares has notably decreased from 327.3 million in 2003 to approximately 236.4 million in 2023, signifying an average annual reduction rate. This trend is generally seen as positive, indicating strong financial health and an efficient capital allocation strategy. With an average repurchase rate of -1.4968 (assuming this represents the average annual reduction percentage of total shares), PFG demonstrates a solid record of value creation for its shareholders by reducing share dilution and potentially increasing earnings per share (EPS). Overall, this trend is favorable for the company's long-term valuation.