Last update on 2024-06-27

PulteGroup (PHM) - Dividend Analysis (Final Score: 5/8)

Analyze the PulteGroup (PHM) dividend policy and performance, covering key metrics like yield, growth rate, payout ratio, and cash flow. Final Score: 5/8.

Short Analysis - Dividend Score: 5

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

PulteGroup (PHM) was assessed using an 8-criteria scoring system to gauge the performance and stability of its dividend policy. The company scored 5 out of 8, highlighting some strengths and weaknesses. PHM's current dividend yield of 0.6588% is much lower than the industry average, making it less attractive for income-focused investors. The dividend growth rate has been inconsistent, with significant gaps and interruptions. However, the average payout ratio is low at 7.11%, indicating that dividends are generally sustainable. Dividends are well-covered by earnings, but historical data suggests they've not always been consistent due to interruptions from 2009 to 2012. The company has shown improvement since 2013. Dividends haven’t been paid over a 25-year span uninterrupted, but the recent trend has been positive since 2013. Lastly, PulteGroup has had a reliable stock repurchase strategy, showing management’s commitment to returning value to shareholders overall.

Insights for Value Investors Seeking Stable Income

Given the mixed review, PulteGroup (PHM) may not be the most appealing option for income-focused investors due to its lower-than-average dividend yield and inconsistent growth in dividends. However, if you’re an investor looking for stability and potential for growth in the future, the low payout ratio and reliable stock repurchases might make it worth a closer look. The company's recent trend in increasing dividends since 2013 shows promise. Overall, exercise caution and consider your investment goals when evaluating PulteGroup (PHM).

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 ratio of a company's annual dividend compared to its share price. It is a key indicator of how much cash flow investors are getting for each dollar invested in the equity of a company. It is important because a high dividend yield could be indicative of a lucrative investment opportunity, whereas a low yield may indicate potential or growing issues within the company.

PulteGroup's (PHM) current dividend yield of 0.6588% is significantly lower than the industry average of 2.59%. This is a notable cause for concern for income-focused investors as it indicates that PulteGroup may not be generating as much return on investment in terms of dividends compared to other players in the industry. When we observe the historical dividend yield data, it's evident that the company had an inconsistent dividend payout history, with significant gaps (2009-2012), followed by some stability and eventually a decline from 2022 to 2023. Despite periods of higher yields, such as in 2015 and 2020, the current trend does not look favorable. Given this historical and present performance, the lower yield could be seen as a red flag suggesting caution to potential investors, particularly those relying on dividend income.

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

Explain the criterion for PulteGroup (PHM) and why it is important to consider

The criterion assesses whether the dividend growth rate for PulteGroup over the last 20 years has consistently surpassed 5%. Examining this metric helps gauge the company's commitment to returning value to shareholders through dividends over an extended period. For PHM, the findings reveal varying growth rates. Notably, there were years such as 2004 and 2014 where dividend growth exceeded 50%, hinting at potential robustness. However, zero or even negative growth in multiple consecutive years, including complete suspension of dividends, casts uncertainty. With an average dividend ratio of 11.71%, this trend shows relatively modest growth overall. While there is evidence of returning shareholder value, the erratic growth trend and interruptions might be concerning and suggests an inconsistent dividend policy.

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

Average payout ratio measures the proportion of earnings a company pays to its shareholders in the form of dividends. It is crucial because it highlights the sustainability of dividends over the long term.

The data shows that PulteGroup's payout ratio over the last 20 years has averaged 7.11%, well below the 65% threshold. This is a positive indicator as it suggests that the company is retaining the majority of its earnings to reinvest in growth or to cushion against future downturns. It also indicates dividend payments are relatively stable and sustainable given the low payout ratio, regardless of economic cycles.

Dividends Well Covered by Earnings?

Explain the criterion for PulteGroup (PHM) and why it is important to consider

Dividends being well covered by the earnings is a vital criterion to assess the sustainability of dividend payments for PulteGroup. This metric essentially tells us whether the company is generating enough profit to pay its declared dividends. If the Earning per Share (EPS) is significantly higher than the Dividend per Share (DPS), it implies that the company has a healthy buffer to continue paying dividends without dipping into retained earnings or accruing debt, both of which are not sustainable in the long term. For investors seeking long-term income, this metric is particularly important.

Dividends Well Covered by Cash Flow?

Describe why it's necessary to assess whether dividends are well covered by a company's free cash flow and what implications it may have for both the company and investors in PulteGroup (PHM).

Analyzing whether dividends are well covered by free cash flow for PulteGroup (PHM) is crucial for both company stability and investor confidence. When dividends are well covered by free cash flow, it indicates that the company generates enough cash from its core operations to pay dividends without resorting to debt or other financial engineering methods. Free cash flow represents the funds available to investors after all expenses, reinvestments, and non-discretionary payouts. If dividends consistently exceed free cash flow, it signals potential sustainability issues, which could result in dividend cuts or suspensions, negatively affecting share prices and investor returns. Conversely, a consistent positive coverage ratio reinforces the investment’s safety and provides the company with flexibility for growth and emergencies. For PulteGroup, this analysis carries weight since erratic or negative cash flow coverage in the past can denote underlying operational issues or cyclical industry effects which need monitoring.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends are crucial as they provide a predictable and reliable source of income to investors. A drop larger than 20% in dividends can indicate potential financial instability within the company.

Analyzing the dividend per share trend for the past two decades, it's evident that PulteGroup (PHM) did not experience more than a 20% drop in any given year. Importantly, between 2007 and 2010, dividends went to zero, but since resuming in 2013, dividends have generally been on an upward trend, highlighting the company's recovery and stability in recent years. This trend is highly favorable for income-seeking investors, signifying financial–even through times of stability and crisis.

Dividends Paid for Over 25 Years?

Payment continuity of dividends for over 25 years is a sign of the company’s strong financial health and commitment to returning value to shareholders, which can be a strong indicator for potential investors.

PulteGroup has not paid dividends consistently over the past 25 years. There were no dividends paid between 2009 and 2012. However, from 2013 onwards, the company resumed paying dividends and showed a positive trend in increasing dividend per share from $0.15 in 2013 to $0.68 in 2023. The interruption in payments during 2009-2012 is a negative indicator but the strong rebound and consistent increases in recent years demonstrate revitalized financial strength.

Reliable Stock Repurchases Over the Past 20 Years?

A history of reliable stock repurchases over the past 20 years.

Analysis of the shares repurchased history of PulteGroup (PHM) over the last 20 years shows a decrease in the total number of shares outstanding from 251.46 million in 2003 to 219.96 million in 2023. The data indicates periods of active repurchase, particularly from 2011 to 2023. This trend suggests a focused management strategy towards returning value to shareholders by reducing share dilution. Reliable repurchases are vital as they can indicate a healthy cash flow and management’s confidence in the company's future prospects. With an average repurchase comparable of -0.3402, the trend is a positive indication of shareholder value creation although there are signs of dilution in years like 2009 and 2010. On balance, this historical trend sets a favorable outlook.