Last update on 2024-06-27

PPL (PPL) - Dividend Analysis (Final Score: 5/8)

Analyze PPL's dividend performance and stability. This in-depth analysis evaluates dividends using an 8-criteria scoring system, providing valuable insights.

Short Analysis - Dividend Score: 5

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

The analysis of PPL Corporation (PPL) using various dividend-related criteria presents a mixed picture. Let's break down the key points: 1. **Dividend Yield**: PPL's current dividend yield (3.5424%) is higher than the industry average (3.12%) and has shown consistent upward potential during economic downturns. 2. **Dividend Growth Rate**: Over the last 20 years, the dividend growth rate for PPL has been unstable with significant fluctuations, failing to meet the 5% consistent growth criterion. 3. **Average Payout Ratio**: PPL has maintained an average payout ratio of 61.34%, below the 65% threshold, indicating relatively sustainable dividends despite occasional spikes. 4. **Dividends Coverage by Earnings**: The coverage ratio has been inconsistent, with several years (notably 2021) showing earnings insufficient to cover dividends, indicating potential sustainability issues. 5. **Dividends Coverage by Cash Flow**: PPL has experienced years where free cash flow was negative, meaning dividends were not consistently covered by operational cash flow. 6. **Stable Dividends**: Apart from a significant drop in 2021, PPL's dividends have generally shown an upward trend over the last 20 years. 7. **Long-Term Dividend Payments**: PPL has paid dividends for over 25 years, which is a positive indicator, though recent years have seen reduced dividend amounts. 8. **Stock Repurchases**: The stock repurchase activity has been inconsistent, signaling less stability in returning capital to shareholders through buybacks.

Insights for Value Investors Seeking Stable Income

Based on the analysis, while PPL Corporation offers a higher than average dividend yield and a long history of dividend payments, the instability in dividend growth and coverage raises concerns. The dividend policy shows signs of being generally sustainable but exhibits volatility that may not appeal to risk-averse investors. Potential investors should monitor PPL’s earnings and cash flow closely to ensure that the upward trend in dividends continues. If you are looking for reliable, consistent dividends and stock repurchases, there might be more stable options out there. However, if you have a higher risk tolerance and focus on long-term dividend potentials, PPL could still be a valid investment to consider with caution.

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?

explain the criterion for PPL (PPL) and why it is important to consider

Dividend yield measures how much a company pays out in dividends relative to its stock price. For PPL, the current dividend yield of 3.5424% is higher than the industry average of 3.12%, suggesting a competitive return for investors looking for income. Over the past 20 years, PPL's dividend yield has generally been higher than the industry average. It's a positive sign although consistency has varied. Compared to the industry average, PPL's yield has always shown upward potential, particularly during economic downturns like in 2008, 2010, and 2020, which saw notable increases. The stability of the yield, especially during volatile market periods, underscores PPL's commitment to returning value to shareholders even when stock prices took a hit.

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 sustainable and increasing dividend growth rate above 5% suggests strong and increasing profitability.

The data indicates that PPL (PPL) had many fluctuations in its dividend per share over the last 20 years. Although exact year-over-year growth rates aren't provided, we can see significant volatility. This volatility is especially felt with ratios such as -9.0861 in 2006 and -47.2892 in 2022. Such large negative movements significantly hinder a stable growth evaluation. The average dividend ratio at 3.053%, which also includes these negative values, fails to meet the 5% consistent growth criteria. This trend is generally bad for the given criteria, indicating a lack of stable and consistent growth which might normally attract long-term dividend investors only if they have higher risk tolerance. PPL’s dividend strategy may need more alignment to attract and retain dividend-seeking investors.

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

The Average Payout Ratio measures the proportion of earnings a company pays to its shareholders in the form of dividends. A long-term Average Payout Ratio below 65% suggests a sustainable dividend policy, indicating the company retains enough earnings to reinvest in the business or cover future downturns. This is a critical measure of dividend reliability.

The data reveals that PPL's Average Payout Ratio over the last 20 years is 61.34%, which is below the 65% threshold. These figures indicate a generally sustainable dividend policy, as the company has distributed an average of 61.34% of its earnings as dividends, retaining the remaining 38.66% for reinvestment or other purposes. This performance is positive for dividend sustainability, despite occasional spikes, such as in 2009 (118.87%) and 2015 (145.60%), which suggest paying out more than it earned. Additionally, in 2021, PPL recorded an unusual negative payout ratio (-85.57%) due to negative earnings, raising questions about cash flow and profit stability in challenging years. Overall, this long-term average shows a favorable trend but warrants monitoring for consistency in earnings and payout practices.

Dividends Well Covered by Earnings?

Dividends should be well covered by the company's earnings to ensure sustainability. This means that the Earnings per Share (EPS) should be comfortably higher than the Dividend per Share. A higher coverage ratio is better because it indicates that the company is generating sufficient earnings to not only pay its dividends but also reinvest in its operations. This is paramount in evaluating the financial health and stability of the company.

From 2003 to 2023, the Dividend per Share covered by Earnings per Share for PPL has shown significant fluctuation. Here's a detailed analysis: 1. The ideal scenario is a coverage ratio above 1, meaning the EPS comfortably covers the dividends. However, PPL's ratio crosses this threshold only twice— in 2009 (1.188) and 2015 (1.456). 2. Notably, 2009 and 2015 had particularly high coverage ratios, indicating strong earnings. However, in 2021 the ratio plummeted to -0.855, signalling that the earnings were negative, which is alarming as it means the company might have been utilizing reserves or borrowing to pay dividends, undermining long-term sustainability. 3. The trend of fluctuating earnings with negative spikes and inconsistent earnings coverage demonstrates potential instability. For recent years, the EPS coverage ratios for 2022 and 2023 are 0.851 and 0.956 respectively, which although better than having negative earnings, it is still below the optimal threshold. Considering these points, while there have been instances where dividends were well-covered by earnings, the general trend raises concerns about consistency and sustainability. This can be seen as a potential risk for dividend reliability and indicates that shareholders should closely monitor earnings performance in the years to come. The recent positive trend is encouraging but should be observed if it sustainably continues.

Dividends Well Covered by Cash Flow?

Dividends Well Covered by Cash Flow considers whether the company generates sufficient free cash flow to cover its dividend payouts. It is important because a consistent ability to cover dividends with cash flow signifies financial stability and reduces reliance on external financing.

The free cash flow (FCF) data for PPL shows considerable volatility and even negative values for many years. Particularly, from 2007 to 2023, there were several years with negative FCF, indicating financial strains. The dividend payouts, however, showed a consistent upward trend until 2020, after which they began to decrease. The ratio of free cash flow to dividends (Dividend coverage ratio) reveals that in many years, the dividends were not well covered by free cash flow. Years like 2011, 2012, and 2017-2023 highlight negative values, which indicates that PPL had to resort to external financing or cash reserves to maintain its dividend payouts. While there are some positive coverage values, such as 2018 (2.68) and 2021 (4.31), the overall trend raises concerns about the sustainability of its dividend policy. It suggests a bad trend for the company in its ability to generate sufficient cash flow to cover dividends consistently.

Stable Dividends Since the Company Began Paying Dividends?

The stability of the dividend payments is crucial as it ensures consistent income for investors. A dividend cut by more than 20% could indicate financial trouble.

Based on the data for PPL Corporation (PPL) over the last 20 years, the dividend per share has shown a general upward trend, increasing from $0.7172 in 2003 to $0.96 in 2023. This demonstrates resilience in maintaining and gradually increasing dividend payouts. However, it is notable that there was a significant drop in the dividend per share in 2021, from $1.66 to $0.875, which amounts to more than a 20% decline. This could raise concerns for income-seeking investors about the stability of PPL's dividends. Nevertheless, the company did slightly increase the dividend again in 2022. Overall, while there has been one notable exception, PPL's dividend history shows a tendency towards stability and increment over the given period.

Dividends Paid for Over 25 Years?

Examining a company's history of paying dividends for over 25 years provides insight into its financial stability and commitment to returning value to its shareholders over a long period.

PPL Corporation has paid dividends consistently for over 25 years, as evidenced by the data provided. Starting from 1998, the company has paid out dividends each year without interruption. The dividend per share has seen an upward trend until 2020, indicating a strong commitment to rewarding its shareholders. However, there is a noticeable decrease in dividends per share in 2021 and 2022, reaching $0.875 and $0.96 respectively, which reflects a significant drop compared to previous years. This dip could be attributed to various factors such as market conditions, internal company decisions, or regulatory pressures. Overall, the long history of dividend payments is generally a good sign of stability, but the recent trend highlights areas that may need further scrutiny and analysis to understand the underlying reasons behind the reduction.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases indicate a company's consistent strategy to return capital to shareholders, helping to boost earnings per share and signal positive management outlook.

PPL (PPL)'s share repurchase data over the past 20 years reveals that there were five significant repurchase years: 2007, 2008, 2009, 2021, and 2022. The overall trend shows an average repurchase rate of approximately 4.0726%, which is relatively low. Additionally, there were several years of increased share counts, suggesting potential dilution or equity issuance. This inconsistent repurchase activity generally signals a less favorable trend for shareholders looking for stable buyback programs as part of their return on investment strategy.