Last update on 2024-06-27

Pool (POOL) - Dividend Analysis (Final Score: 7/8)

In-depth dividend analysis of Pool Corporation (POOL), achieving a score of 7/8, providing insights on dividend yield, growth rate, payout ratio, and coverage.

Short Analysis - Dividend Score: 7

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

We've analyzed Pool (POOL) using an 8-criteria scoring system for its dividend policy and overall, it scored a 7 out of 8. Pool has a current dividend yield of 1.0785% which is higher than the industry average. Its average annual dividend growth rate is 16.41% over the last 20 years, showing strong growth despite some fluctuations. The payout ratio is low at an average of 34.32%, indicating sustainable dividend payments. The company’s dividends are well-covered by its earnings most years, though coverage by cash flow has decreased recently. Pool has mostly increased its dividends over the last 20 years, but it started paying dividends in 2004 so it doesn't meet the 25-year track record. Additionally, it has been consistently repurchasing stock over the past two decades, indicating a commitment to returning value to shareholders.

Insights for Value Investors Seeking Stable Income

Given Pool's solid track record of dividend payments, strong growth rate, and commitment to shareholder value through stock repurchases, it appears to be a strong candidate for income-focused investors. However, interested investors should watch for the recent trend of decreased dividend coverage by cash flow as a potential risk. If you value consistent and growing dividends and appreciate a company that actively repurchases shares, Pool (POOL) could be a good addition to your investment portfolio. Still, it’s important to consider the company's broader financial health and market conditions before making any decisions.

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?

The dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price. It is a key indicator for income-focused investors as it reflects the potential return on investment from dividends alone.

Pool (POOL) has a current dividend yield of 1.0785%, which is higher than the industry average of 0.97%. Over the last 20 years, Pool's dividend yield has seen significant fluctuations, reaching as high as 2.83% in 2008 and as low as 0.5265% in 2021. Despite the variability, the current dividend yield being above the industry average suggests that Pool is relatively attractive for income-oriented investors. The company has shown a commitment to returning value to shareholders through dividends, gradually increasing the dividend per share over time. This trend is positive and indicates strong financial health, but prospective investors should also consider the potential for future stock price appreciation and overall market conditions.

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

The dividend growth rate over 20 years indicates the company's ability to increase shareholder value through higher dividend payouts. A growth rate above 5% exemplifies strong dividend policy and consistent earnings growth.

Over the past 20 years, Pool Corporation (POOL) has displayed a varied Dividend Growth Rate. Analyzing the provided dividend per share ratio data, we see significant variability year over year, with some years showing zero dividends and others displaying very high percentages. The average dividend growth ratio stands at 16.41%, which surpasses the 5% threshold, indicating that the company has generally succeeded in increasing shareholder returns through dividends. However, the substantial variation might suggest inconsistent earnings or decision-making regarding dividend payouts. Despite these fluctuations, an average above 5% demonstrates a healthy upward trend in dividend growth, showcasing robust long-term financial health and enduring growth potential for dividends.

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

The payout ratio is a measure of the proportion of a company's earnings that are paid out as dividends to shareholders. This is important as it indicates the sustainability of the dividend payouts, with a lower ratio suggesting more retained earnings for growth.

POOL's average payout ratio over the last 20 years is 34.32%, which is well below the 65% threshold most investors consider healthy for dividend-paying stocks. This suggests that POOL has consistently used a substantial portion of its earnings for reinvestment, rather than payouts to shareholders. However, it is worth noting the spike in 2009 where the payout ratio hit 132.82%, likely due to lower earnings during the financial crisis while maintaining dividend payouts. Since then, the ratios have been more stable and conservative, indicating a healthy trend overall.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings

The coverage ratio of Pool's earnings per share (EPS) to its dividends per share (DPS) has fluctuated over the years. A high EPS to DPS ratio implies that the company earns significantly more than it pays out in dividends, which can indicate a strong capability to afford dividends and even potentially increase them. Over the years, this ratio for Pool (POOL) has mostly stayed above lower benchmarks, indicating that earnings more than adequately cover the dividends. High earnings coverage means a safer dividend as there is enough profit to maintain it.

Dividends Well Covered by Cash Flow?

Dividends being well covered by cash flow means that the company generates enough free cash flow to comfortably pay its dividends. This is critical as it indicates financial stability and sustainability of dividend payouts.

Looking at Pool's cash flow and dividend payout amounts from 2003 through 2023, we see fluctuations in the coverage ratio: 1. The ratio began at 0.0 in 2003 when no dividends were paid. 2. The highest coverage was in 2018 with 0.797, suggesting that almost 80% of free cash flow was used to cover dividends, indicating a strong cover at that time. 3. Conversely, 2023 shows the lowest coverage at 0.202, meaning just around 20% of free cash flow was utilized for dividends, indicating a reduced cover. Overall, the coverage ratio hints an inverse relationship between free cash flow and dividends paid with certain periods underlined by higher utilization. The trend from 2019 to 2023 indicates a decreasing coverage ratio, which could be a concern if this continues. A diminishing ratio could signal potential risk for future dividend payouts if free cash flow doesn't improve.

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.

Dividend per Share last 20 years: {'year': {'values': ['2003', '2004', '2005', '2006', '2007', '2008', '2009', '2010', '2011', '2012', '2013', '2014', '2015', '2016', '2017', '2018', '2019', '2020', '2021', '2022', '2023']}, 'dividendPerShare': {'values': [0, 0.2033, 0.34, 0.405, 0.465, 0.51, 0.52, 0.52, 0.55, 0.62, 0.73, 0.85, 1, 1.19, 1.42, 1.72, 2.1, 2.29, 2.98, 3.8, 4.3]}} Return year that was dropped by 20%: True

Dividends Paid for Over 25 Years?

Explain the criterion for Pool (POOL) and why it is important to consider

The provided data indicates that Pool (POOL) started distributing dividends in 2004. Hence, they have a track record of paying dividends consecutively for roughly 19 years, falling short of the 25-year threshold. Consistent dividend payments over time are not just an indicator of a company's financial health and profitability but also increase investor confidence, demonstrating stability and reliability. While the trend shows consistent growth in dividend payments, failing to meet the 25-year mark weakens confidence slightly relative to companies with longer histories.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases refer to a consistent reduction in the number of outstanding shares over a long period, demonstrating a company's commitment to returning value to shareholders.

Over the past 20 years, Pool (POOL) has shown a reliable trend of repurchasing shares, evidenced by the overall reduction in the number of shares from 55.77 million in 2003 to 38.70 million in 2023. With specific years showing repurchases (2005, 2006, 2007, 2008, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019, 2021, 2022, 2023), the company demonstrated consistency in buybacks. An average reduction of -1.7863 million shares per year underscores the firm’s commitment to enhancing shareholder value through repurchase programs. This trend is positive as it often leads to higher earnings per share (EPS) and demonstrates effective capital allocation.