Last update on 2024-06-27

Power Integrations (POWI) - Dividend Analysis (Final Score: 7/8)

Power Integrations (POWI) dividend analysis evaluates performance using an 8-criteria system, scoring 7/8 for stability and growth potential.

Short Analysis - Dividend Score: 7

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

The dividend analysis of Power Integrations (POWI) evaluates its performance against 8 criteria to determine the stability and appeal of its dividend policies. POWI scored 7 out of 8, indicating a relatively strong performance in most areas. Notably, POWI has demonstrated an attractive dividend yield above the industry average, and a conservative average payout ratio well below 65% over the past 20 years. Additionally, the company's dividends have generally been covered by earnings and free cash flow, providing stability and reliability. However, the company has not paid dividends for a continuous 25-year period.

Insights for Value Investors Seeking Stable Income

Power Integrations (POWI) generally shows strong stability in its dividend policies with some room for improvement in consistent growth and coverage consistency. Given its positive performance in most criteria, especially in dividend yield and payout ratios, POWI is worth considering for investors seeking reliable dividend stocks. However, investors should be mindful of its relatively short history of dividend payments and fluctuating growth rates, which may pose some risks.

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 measure of the dividend income relative to the stock price. This is important as it shows how much cash flow you are getting for each dollar invested.

Power Integrations' (POWI) most recent dividend yield of 0.9378% is significantly above the industry average of 0.65%. This could be an attractive metric for income-focused investors. Analyzing the last 20 years, the company has shown considerable improvement in its dividend policy since it started paying dividends in 2008, where the dividend yield was only 0.1258%. Over the years, their yield peaked in 2018 at 1.0495%, superior to its industry's highest in 2008 of 1.41%. Its current dividend yield near 1% is continuing its strength in providing shareholder returns. However, it's also notable that its yield has been quite volatile, fluctuating significantly year to year in response to changes in both dividend payments and stock prices. Nevertheless, outperforming the industry average is a positive indicator, suggesting better-than-average returns for investors.

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

The Dividend Growth Rate measures the annualized percentage rate of growth of a company's dividend payments. A rate higher than 5% is typically seen as a positive indicator of a company’s ability to increase its dividend payments over time, reflecting potential financial health and profitability.

Analyzing the dividend data for Power Integrations (POWI) from 2003 to 2023, we can observe the following key points: 1. Between 2003 to 2008, the company did not pay any dividends. 2. Starting from 2009, Power Integrations began to issue dividends, but there were years of no payments scattered throughout (such as 2011 and several others). 3. During years payments were made, the dividend growth shows significant volatility. While there were years with substantial dividend growth, for instance in 2009 and 2020 with 300% and 50% respectively, there were also years with decreases, such as the 91.5% decrease in 2015. Overall, the average dividend ratio is 30.45%, but this figure is skewed by extreme fluctuations rather than consistent growth, meaning the dividend growth rate does not show steady and reliable improvement. Therefore, considering the erratic nature of the payments and their incomplete years, it is clear that Power Integrations did not achieve a consistent dividend growth rate higher than 5% over the last 20 years. This trend indicates inconsistency and potential risk for dividend-seeking investors.

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

Power Integrations (POWI) must maintain an average payout ratio below 65% over the past 20 years to meet this criterion.

The average payout ratio of 17.41% over the last 20 years is well below the threshold of 65%. This is a positive trend, indicating that POWI has been conservative in its dividend payouts relative to its earnings. This conservative approach likely provides a margin of safety for dividend sustainability and future growth. Additionally, the payout ratio has been exceptionally low in many years, with values such as 0% in early years and negative in 2012 due to possible extraordinary write-offs or other non-recurring events. This trend reassures investors regarding the company's focus on reinvesting earnings for growth while still rewarding shareholders.

Dividends Well Covered by Earnings?

Dividends are considered well-covered by the earnings when the company's earnings per share (EPS) can comfortably cover the dividends paid out per share. This is important as it reflects the company's ability to sustain its dividend payouts over time without compromising financial stability.

Analyzing the data for Power Integrations (POWI), we observe a mixed trend regarding earnings coverage of dividends. For the years 2021 and 2022, the company had an EPS of 2.7254 and 2.9558, respectively, covering their dividends per share of 0.54 and 0.72, demonstrating a coverage ratio of approximately 5.05 and 4.10. This indicates a strong capacity to cover dividends. However, the consistency falters as the company showed zero coverage in 2023, having an EPS of 0 against a dividend payout, reflecting a challenging position. Generally, a coverage ratio below 1 (which means dividends are not fully covered by earnings) signals potential risk. Over the past two decades, fluctuations are evident, with some years indicating robust coverage and others lacking. Sustained periods of high coverage portray financial health and shareholder confidence; hence, POWI's recent dip in 2023 should be monitored closely.

Dividends Well Covered by Cash Flow?

The ratio of free cash flow to dividends answers whether the company generates enough cash to cover its dividend payments. If this ratio is greater than 1, it indicates the company is earning significantly more cash than it is paying out, which is favorable for dividend sustainability. A ratio below 1, meanwhile, might suggest potential strains on maintaining dividend payments.

Analyzing the data from 2003 to 2023, Power Integrations (POWI) shows a consistently positive trend in free cash flow coverage of dividends. Particularly notable is the dramatic increase in 2019 and 2023 with ratios of 0.4557 and an exceptional 0.9807, respectively. These figures indicate that during these peak years, the company generated nearly enough or significantly more cash than it distributed in dividends, implying strong cash flow coverage and suggesting financial robustness. However, there are years like 2008 where the ratio dipped as low as 0.0269. Despite these fluctuations, the overall growth trend in the ratio is promising for the company's ability to sustain and potentially grow its dividend payments, proving beneficial for long-term dividend investors.

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 because it ensures a reliable income stream and reflects positively on the company's financial health and commitment to returning value to shareholders.

Analyzing Power Integrations' dividends over the past 20 years, it's evident there was no drop in dividends exceeding 20%. Starting from 0 in early years and initiating dividend in 2008, they've seen a general upward trend since. A marginal jump was seen from 2019 to 2020 (over 50%). A slight increment every other year displays strong consistency. However, for a company initiating dividends midway in evaluation period, this trend signals a positive approach. Long-term stability in increments, barring minor arks, assures income-seeking investors of sustainable returns providing stable, dependable dividends.

Dividends Paid for Over 25 Years?

The criterion checks if the company has consistently paid dividends for at least 25 years, which indicates long-term financial stability and a commitment to returning value to shareholders.

Based on the provided data, Power Integrations (POWI) started paying dividends in 2009 with a dividend per share of $0.0125. Over the years, there has been a general upward trend in the dividends paid by the company, reaching $0.77 per share in 2023. However, as the company has not paid dividends for 25 years consecutively (only 15 years, starting from 2009), this does not meet the criteria of paying dividends for over 25 years. While the trend is positive, showing growth and an increasing commitment to rewarding shareholders, it still falls short of the 25-year mark required by this criterion. This could be seen as a disadvantage for investors looking for long-term consistency in dividend payments.

Reliable Stock Repurchases Over the Past 20 Years?

Explain the criterion for Power Integrations (POWI) and why it is important to consider

criterion