Last update on 2024-06-27

Perrigo (PRGO) - Dividend Analysis (Final Score: 6/8)

Perrigo (PRGO) dividend analysis scored 6/8, evaluating performance and stability using key criteria over 20 years. Read detailed report for insights.

Short Analysis - Dividend Score: 6

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

The dividend analysis rates Perrigo (PRGO) with a dividend score of 6 out of 8 criteria. Perrigo's current dividend yield is 1.6967%, which is higher than the industry average and shows potential as a steady income source. However, the company's dividend growth rate is highly inconsistent, with average growth exceeding 5% but marked by significant fluctuations. The payout ratio, though averaging 4.53%, also displays high instability with concerning negative and above-threshold values in multiple years. Perrigo's dividend coverage by earnings and cash flow is inconsistent and often falls short, raising sustainability concerns. Historically, the company has paid dividends since its inception, but faced a steep 47.5% drop in 2023. Share repurchase activity over the past 20 years has also been inconsistent, signaling a lack of robust buyback strategy.

Insights for Value Investors Seeking Stable Income

While Perrigo shows some positive aspects like a higher-than-industry-average yield and average growth rates that exceed 5%, the inconsistency and volatility in dividends, payout ratios, and coverage might be concerning for long-term income-seeking investors. Furthermore, the recent big drop in dividends and the lack of a consistent buyback strategy indicate potential underlying issues. Investors should approach Perrigo cautiously and consider these factors in their investment decisions. Detailed analysis of specific years with negative payout ratios is recommended before making any long-term commitments.

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 signifies the ratio of a company's annual dividend compared to its share price. A higher-than-average dividend yield often indicates a strong income potential for the investor. However, it's also crucial to assess how sustainable these dividends are.

Perrigo's (PRGO) current dividend yield is 1.6967%, which surpasses the industry average of 1.09%. This initially paints a favorable picture for the stock as a source of income. Over the last 20 years, the dividend yield has seen varied fluctuations, starting at 0.6997% in 2003 and peaking at 3.0507% in 2022. Despite its varying yield, Perrigo has consistently outperformed the industry average most of the years. However, it is important to notice that yields such as these are influenced both by dividend payments and fluctuations in stock prices. The stock price of Perrigo has shown significant volatility over the years with major peaks and troughs—from a low of $15.72 in 2003 to a notable high of $167.16 in 2014, then decreasing to $32.18 in 2023. Given this backdrop, the latest yield of 1.6967% could be seen as a healthy but cautious sign. Investors should also track the stock's price movements and ensure dividend payouts are sustainable.

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

A consistent dividend growth rate over the long term, typically measured over a period like 20 years, reflects a company's ability to generate profits and commit to shareholder returns. A growth rate higher than 5% is considered healthy and attractive.

Analyzing Perrigo's (PRGO) dividend per share ratio over the past 20 years, we observe significant volatility. The values range dramatically, from negative -47.5% in 2023 to a peak of 41.8919% in 2014. The average dividend ratio here is 9.52%. While the average growth rate seems to surpass the 5% threshold, the inconsistency and sharp fluctuations imply an unstable dividend policy. Some years, dividends have shrunk or even turned negative, indicating potential challenges in maintaining or growing profitability. This irregularity may be worrisome to long-term investors seeking reliable income.

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

The average payout ratio is crucial in evaluating the sustainability of a company's dividend. A payout ratio below 65% typically indicates that a company is retaining enough of its earnings to reinvest in growth while still returning value to shareholders.

The data for Perrigo (PRGO) shows that its payout ratio has varied significantly over the past 20 years, with fluctuations ranging from -186.15% to 80.23%. The payout ratio exceeded the 65% threshold in 2015, 2017, and 2018, which are concerning years where dividends paid were not adequately covered by earnings. Over negative payout ratios, seen in 2004, 2016, 2020, 2021, and 2022, indicate that the company paid dividends despite incurring losses. The average payout ratio for Perrigo stands at 4.53%, which is well below the 65% target. While a low average payout ratio may seem positive at first glance, the highly erratic and sometimes negative payout ratios reveal underlying stability issues in maintaining consistent earnings. Thus, while the average payout ratio meets the criterion of being under 65%, the wide range of values indicates a concerning inconsistency that warrants further investigation around specific years of high or negative ratios. To assess dividend sustainability in future, consistent earnings and a stable payout ratio need more focus.

Dividends Well Covered by Earnings?

This measures how much earnings exceed dividend payouts. This cushion ensures dividends are sustainable even if earnings drop temporarily. Lack of coverage could signal potential dividend cuts.

Perrigo's dividends are inconsistently covered by earnings per share (EPS). For instance, in 2013, the coverage ratio was 0.21, implying decent coverage, but years like 2016 (-25.89) and 2021 (-1.86) show negative coverage, indicating earnings were not enough to cover dividends. This erratic trend, with frequent negative coverage, emphasizes potential risks to dividend sustainability. Consistently high EPS coverage would indicate a robust dividend policy, which is currently not evident for Perrigo.

Dividends Well Covered by Cash Flow?

Assessing whether dividends are well covered by cash flow involves comparing the free cash flow generated by a company with the total amount of dividends paid out. This metric ensures that the company generates enough cash to sustainably support its dividend payments, which is crucial for investors seeking steady and reliable income.

Analyzing Perrigo's free cash flow and dividend payouts from 2003 to 2023, we notice a distinctive trend. In the majority of the years, especially between 2003 and 2018, the dividend coverage ratio is well below 1.0, indicating that dividends are not fully covered by free cash flow. For instance, in 2003, the ratio stands at 0.10, illustrating that only 10% of dividend payments were covered by cash flow. This poses a sustainability concern. However, notable exceptions are observed. For instance, in 2019, the coverage ratio surged to 0.45, slightly improving sustainability, though still not ideally above 1.0. A stark anomaly is seen in 2021, where the coverage is at an extraordinary 30.86. This implies that free cash flow was exceptionally high compared to dividends that year, possibly due to a special event or substantial cash influx. By 2023, the coverage ratio stands at 0.49, still indicating that only about half of the dividends are covered by free cash flow. Although there is significant variation, on a broad spectrum, the trend of low coverage ratios raises concerns about Perrigo's dividend payment sustainability, specifically in years with lower free cash flow. This inconsistency could reflect challenges in maintaining consistent free cash flows or aggressive dividend policies that may not be aligned with cash generation capabilities. Thus, for dividend-focused investors, this trend might be seen as a red flag unless special circumstances of higher cash flows are beyond recurrent operational abilities.

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.

Analyzing the dividend per share data for Perrigo (PRGO) over the last 20 years, we observe mostly consistent increments in dividend payments, with values rising from $0.11 per share in 2003 to a peak of $1.04 in 2022. This steady increase highlights an intention to return value to shareholders continuously. However, in 2023, the dividend per share dropped significantly to $0.546, which is almost a 47.5% reduction from the previous year. This sharp decrease is substantial, signaling a potential area of concern for income-focused investors. Although the overall trend across the years might seem positively inclined, such an abrupt reduction might undermine investor confidence and lead to a revaluation of expected dividend income. In conclusion, while Perrigo has generally exhibited stable and growing dividends over two decades, the drastic drop in 2023 deviates from this pattern, potentially signaling instability that needs addressing for future consistency.

Dividends Paid for Over 25 Years?

Dividends Paid for Over 25 Years

The consistency in paying dividends over a long period is often seen as a sign of a company's financial stability and management's commitment to returning value to shareholders. It is considered a positive attribute as it demonstrates long-term profitability and liquidity.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases indicate that a company is actively buying back its own shares, which can signify management's confidence in the company's future prospects. This criterion is important because share buybacks can increase shareholder value by reducing the number of outstanding shares, thus boosting earnings per share and potentially increasing stock prices.

Over the past 20 years, Perrigo has demonstrated inconsistent share repurchase activity. The total number of shares has generally increased from 72.29 million in 2003 to 134.5 million in 2023. However, certain years such as 2006, 2008, 2009, 2017, 2018, 2019, 2021, and 2023 saw notable repurchase activity. This inconsistent activity, combined with the observed average repurchase over the period being -1.5684 million shares, signals that the overall strategy does not tilt heavily towards consistent buybacks. This could be due to varying prioritization of capital deployment over the years, with the company potentially allocating resources to other investments, acquisitions, or facing operational challenges in certain periods. The trend doesn't clearly demonstrate a strong commitment towards boosting shareholder value through buybacks, which might be seen as a negative indicator for investors looking for reliable capital return programs.