Last update on 2024-06-27

Rent-A-Center (RCII) - Dividend Analysis (Final Score: 5/8)

Discover Rent-A-Center's (RCII) dividend performance and stability analyzed with an 8-criteria scoring. Final Score: 5/8. Learn more about RCII dividends now.

Short Analysis - Dividend Score: 5

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

The analysis looks at Rent-A-Center (RCII)'s dividend policy based on 8 different criteria. Rent-A-Center has a low dividend yield compared to the industry average and a fluctuating dividend growth rate. Although the average payout ratio is within acceptable limits, it shows significant variability and inconsistent coverage by earnings and cash flow. Dividends have not been consistently stable or paid over long periods, and there are significant decreases at times. The company does show a reliable trend in stock repurchases over the past 20 years, indicating management's commitment to shareholder value in this aspect.

Insights for Value Investors Seeking Stable Income

Rent-A-Center shows some positive signs, particularly with its committed stock repurchase strategy. However, its inconsistent dividend yield, growth rate, and coverage by earnings and cash flow, along with instability in dividends, suggest it may not be the best choice for dividend-focused investors. Proceed with caution if considering RCII for reliable dividend income.

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 measures the annual dividends paid out by a company as a percentage of its stock price. It is a crucial metric for income-focused investors as it shows the return on investment based on the dividend alone.

Rent-A-Center (RCII) is currently showing a dividend yield of 1.283%, which is considerably lower than the industry average of 2.55%. This lower yield should be taken into context with RCII's fluctuating history in dividend yields over the past 20 years. For instance, the yield peaked at 6.4128% in 2015 and had another high of 6.031% in 2022, indicating periods of aggressive dividend payouts. However, there were also times, such as 2003-2010, and 2018, where dividends were non-existent or minimal. Investors should assess whether these fluctuations align with their income expectations. The recent lower yield suggests either a reduction in dividends or an increase in stock price, or both. Evaluating the stock price, it peaked in 2021 at $48.04 and dropped to $22.55 in 2022, ending at $26.5 in 2023. The dividend per share in 2023 is $0.34. Considering these factors, the trend might not be favorable as rent-a-center's dividend yield is struggling to keep pace with industry standards, potentially reducing its attractiveness to income-focused investors.

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

The dividend growth rate reflects the company's ability to increase dividends paid to shareholders. A rate higher than 5% signifies financial health.

Analyzing Rent-A-Center's (RCII) dividend payout over the last 20 years paints a complex picture. The dividend values oscillate significantly with notable dividends in certain years such as 400 in 2011 and 488 in 2020, but also show concerning negative values in several years. The average dividend ratio stands at 32.5%. Although some years exhibit strong figures, the inconsistency and presence of negative payouts in some periods are alarming. Given these fluctuations and not achieving a consistent growth rate above 5%, this trend is unfavorable and highlights instability in dividend distributions, making it undesirable for investors seeking reliable income.

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

This criterion examines whether the average payout ratio of Rent-A-Center over the past 20 years is lower than 65%. The payout ratio is a key indicator of how much of a company's earnings are being paid out as dividends. It also accents the company's ability to sustain its dividends and invest in future growth.

Rent-A-Center (RCII) has recorded payout ratios stretching from 0% to an extreme high of 648.855% over the past two decades. Such fluctuations indicate significant inconsistency. However, the average payout ratio stands at 51.10%, which is below the 65% threshold specified by the criterion. The payout ratio is a reflection of the company's ability to distribute its profits to shareholders while retaining enough funds to finance other operations. Higher payout ratios signal better returns for shareholders in the short term but can suggest potential issues revolving around retaining earnings for future expansion or unforeseen financial requirements. For RCII, periods of negative payout ratios and exceedingly high figures like in 2022 might be red flags, albeit the average stays within reasonable bounds. The overall trend, showing a stable majority between 4% to 63%, generally indicates good health, but the occasional spikes point towards possible volatility in profitability and payouts. Thus, while the average figure meets the desired criterion, the underlying variability suggests that investors should keep an eye on annual performance and influencing factors.

Dividends Well Covered by Earnings?

Dividends being well covered by earnings is crucial because it ensures that a company can sustainably pay dividends without compromising its financial stability. If dividends exceed earnings, it may lead to increased debt or reduced capital for reinvestment, jeopardizing long-term growth.

Evaluating the relationship between Rent-A-Center's earnings per share (EPS) and dividends per share (DPS) over the years, we observe a mixed trend. While the company started paying dividends in 2010 and managed to maintain or increase them for several years, there were instances where dividends were not adequately covered by earnings. For example, in 2015 and 2016, the dividends far exceeded the EPS, leading to negative coverage ratios of -0.0588 and -0.1213. This implies that the company paid dividends from retained earnings or took on debt. However, in 2017 and 2021, RCII showed robust coverage ratios of 1.9417 and 6.4885, respectively, indicating strong earnings relative to dividends. The trend is concerning in recent years, particularly in 2022 and 2023, where the coverage ratio significantly drops to 0.2096 and 0, suggesting earnings could barely cover dividends or didn't cover them at all. This inconsistency raises concerns about the sustainability of RCII's dividend policy in the long term.

Dividends Well Covered by Cash Flow?

Assess whether a company’s dividend payments can be sustained by its free cash flow.

Rent-A-Center's (RCII) coverage of dividends by free cash flow has seen significant fluctuation over the years. In earlier years, from 2003 to 2010, dividends were either not paid or were a minimal part of free cash flow. However, starting in 2011 when dividends were more consistently paid, the coverage ratio ranged from a low of 0.068 in 2018 to an alarming -0.752 in 2014, illustrating times when dividends exceeded free cash flow. Notably, during strong free cash flow years, such as in 2021 with approximately $329.8 million, the coverage was more robust at 0.216. Overall, while there have been periods of sufficient coverage, the inconsistency, and occasional unsustainable payout ratios indicate a mixed trend that may concern potential investors focused on dividend reliability.

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.

From the array provided, RCII's dividend payments over the past 20 years indicate significant volatility. For instance, from 2014 to 2015 the dividend per share dropped drastically from $0.96 to $0.24 and even went down to $0 in 2018, post a two-year absence without payments previously. It bounced back up significantly with values such as $1.47 in 2020 and $1.36 in 2021 only to plummet to $0.34 in 2023, illustrating significant inconsistency. Notably, the drops in dividends were significantly greater than 20% at multiple points. This trend is generally bad and signifies unstable dividend practices not suitable for investors seeking reliable income from dividends.

Dividends Paid for Over 25 Years?

The criterion of determining whether a company has paid dividends for over 25 years is crucial. It shows the company's track record of consistently returning value to shareholders and indicates financial health and stability.

Based on the data provided from 1998 to 2023, Rent-A-Center (RCII) does not meet the criterion of paying dividends for over 25 years. In fact, RCII started paying dividends in 2011, and there have been inconsistencies in their dividend payments, with several years showing zero dividends such as 2017 and 2018. The company's ability to pay dividends appears inconsistent and might raise concerns about its financial stability and commitment to shareholder returns. Although there are instances of high dividends, the lack of a consistent and long-term dividend payment history can be considered a negative aspect when evaluating RCII against this criterion.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases measure a company's commitment to returning value to shareholders by reducing the number of outstanding shares. This can signal management's confidence in the company's future prospects.

Rent-A-Center has demonstrated a generally reliable trend of stock repurchases over the past 20 years, with significant reductions in the number of shares outstanding in several years. For instance, the number of shares decreased from approximately 87.3 million in 2003 to around 55.6 million in 2023. This represents a substantial reduction in shares, highlighting a trend of consistent repurchasing activities. The overall average repurchase rate of -2.0389% underscores this commitment. Notably, there were significant repurchases between 2004 and 2015, suggesting a strong historical dedication to returning value to shareholders. The resumption of repurchasing activities in 2020 and continuity in 2022 and 2023 indicates a renewed focus on this strategy. This trend is generally positive as it can enhance shareholder value by increasing earnings per share (EPS) and signaling management's confidence in the company's financial health.