Last update on 2024-06-27

Pentair (PNR) - Dividend Analysis (Final Score: 6/8)

Explore Pentair (PNR) dividend analysis with a final score of 6/8. Learn about stability, payout ratio, and growth rates over the past 20 years.

Short Analysis - Dividend Score: 6

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

The dividend analysis for Pentair (PNR) utilizes an 8-criteria scoring system for evaluating its dividend policy. Despite a dividend score of 6, Pentair's performance varies across different criteria. Its current dividend yield of 1.2103% falls short of the industry average of 1.57%, which may not appeal to income-focused investors. The average annual dividend growth rate over the past 20 years has not been disclosed, making it difficult to ascertain its performance in that regard. Pentair exhibits a conservative average payout ratio of 18.55% for the past 20 years, significantly below the 65% benchmark, indicating potential for future dividend increases. Historically, dividend coverage by earnings has fluctuated, indicating risks due to past deficits. However, recent figures reflect a stable yet low payout ratio. Stable dividend payments are crucial, but Pentair experienced significant reductions in 2018 and 2019. Pentair has a 25-year track record of consistent dividend payments, bolstering confidence in its reliability. Stock repurchases over the past 20 years further strengthen shareholder value.

Insights for Value Investors Seeking Stable Income

Despite some strong points, such as low payout ratios and consistent 25-year dividend history, Pentair's underperformance in dividend yield compared to the industry average and past issues with dividend coverage by earnings warrant caution. For investors focusing on income stability, the notable dividend reduction in recent years and fluctuating dividend coverage might be concerning. Therefore, while Pentair shows potential for growth, it may not be the best choice for income-focused investors seeking stable and high dividend yields.

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 the ratio of a company's annual dividend compared to its share price. It is an indicator of the income generated from an investment in relation to the price paid for the share.

With a dividend yield of 1.2103%, Pentair (PNR) is underperforming compared to the industry average of 1.57%. Historically, Pentair's yield has seen significant fluctuations; for instance, it reached a high of 2.8728% in 2008, and a low of 0.9872% in 2004. In contrast, the industry dividend yield has shown relatively lower volatility. Interestingly, despite the dividend yield decline from 2021 (1.0954%) to 2023 (1.2103%), the company's stock price has been fairly stable, indicating other factors might be at play, such as strong capital gains or effective management strategies. Investors should be cautious as Pentair's dividend yield is currently low, which places it at a competitive disadvantage in attracting income-focused investors.

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

Why it's important to evaluate the Dividend Growth Rate over a significant period and the standard threshold.

Analyzing the dividend growth rate over an extended period, such as the last 20 years, helps us understand a company's consistency and commitment to returning value to shareholders. A growth rate above 5% is often seen as a robust indicator of financial health and shareholder value. This metric indicates that the company is not only generating enough profit to reward shareholders but is also growing its dividends at a rate that outpaces inflation and other investment opportunities.

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

This criterion shoots for a prudent approach to dividends by ensuring the Average Payout Ratio remains below 65% over the last two decades.

Reviewing Pentair's historical payout ratio from 2003 to 2023, it's evident that their average payout ratio stands at 18.55%, significantly under the 65% benchmark. This trend indicates a conservative strategy in profit distribution, supporting the firm's financial health and growth potential. Only years 2011, 2008, 2013, and 2018 show concerning values, but even then, the overall trend is favorable. Furthermore, this conservative payout ratio suggests room for future dividend increases.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings indicate how capable a company is of sustaining its current dividend out of its net income. A higher ratio suggests greater safety of the dividend payments yet ideally, it is below 100%, meaning the company is not paying more in dividends than it is earning.

For Pentair (PNR), the trend of dividends being covered by earnings per share fluctuated significantly. Historical data depicts varied coverage from as high as 41.25% in 2009 to significant deficits, like -205.45% in 2015. Latest figures suggest a coverage of 23.33% in 2023, reflecting somewhat stable yet a low payout ratio. Such a ratio implies dividends are sustainable. However, past performances in 2011 (-70.23%) and 2015 (-205.45%) highlight potential risks. On a positive note, periods where the ratio is high like in 2023 ensures dividends aren’t overstepping earnings, showcasing improvements but necessitating attention to past volatilities.

Dividends Well Covered by Cash Flow?

Explain the criterion for Pentair (PNR) and why it is important to consider

Dividends well covered by cash flow means that the company's free cash flow (FCF)—the cash generated after capital expenditures—sufficiently covers its dividend payouts. This metric indicates financial health and the ability to sustain and potentially grow dividends. A coverage ratio above 1 indicates dividends are safely covered by free cash flow.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends over the past 20 years ensure consistent income for investors and demonstrate company reliability.

Reviewing Pentair’s dividend history from 2003 to 2023, there's a significant drop from $0.9268 in 2017 to $0.8201 in 2018, which constitutes an 11.5% reduction. Furthermore, from $0.8201 in 2018 to $0.72 in 2019, there's an 12.2% drop, resulting in an effective fall of about 22.3%. This violates the stability criterion, indicating a reduction over 20%, which is concerning for income investors. Thus, Pentair's dividend stability does not fully meet the desired criterion for income-seeking investors looking for unshakable dividend payouts.

Dividends Paid for Over 25 Years?

Interpret the results for assessing if the company has paid dividends for over 25 years.

Given the years and the respective dividend per share values, Pentair (PNR) has consistently paid dividends from 1998 to 2023, a span of 25 years. The increasing trend in dividends per share over these years is significant for assessing a company's stability and shareholder value commitment. Consistent dividend payment signifies financial health and investor confidence.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable Stock Repurchases Over the Past 20 Years

Consistent stock repurchases over an extended period can indicate strong cash flow and management's confidence in the company's future prospects. It also generally enhances shareholder value by reducing the number of shares outstanding, thus increasing Earnings Per Share (EPS).