Last update on 2024-06-28

Richardson Electronics (RELL) - Dividend Analysis (Final Score: 5/8)

Analyze Richardson Electronics (RELL) with a 5/8 score for dividend performance and stability using an 8-criteria system.

Short Analysis - Dividend Score: 5

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

The dividend analysis for Richardson Electronics (RELL) reveals a mixed performance. While the company has a better dividend yield than the industry average and has been paying dividends for over 25 years, other aspects are concerning. The dividend growth rate is highly volatile with periods of no dividends, and the payout ratio is significantly inconsistent, with years of net losses. Dividend coverage by earnings and cash flow shows fluctuations and instability, and overall, dividends have not shown stable growth. Stock repurchases have occurred in some years, but the trend is not consistent either, adding to the uncertainty in RELL's long-term shareholder value strategy.

Insights for Value Investors Seeking Stable Income

Considering the overall analysis, Richardson Electronics (RELL) might not be the best choice for dividend-focused investors seeking stability and reliable returns. The inconsistent dividend growth, payout ratios, and unstable dividend coverage can be significant red flags. If you prioritize steadiness in dividend income and financial health, it might be safer to explore other companies with a more predictable dividend policy and consistent financial metrics.

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 an indicator for investors about the amount of cash flow they are getting back in the form of dividends in relation to their investment.

Richardson Electronics (RELL) boasts a dividend yield of 1.1252%, which stands higher than the industry average of 0.84%. Over the past 20 years, RELL's dividend yield has seen significant fluctuations, ranging from a low of 0.6843% in 2010 to a high of 5.0955% in 2020. Currently, the 1.1252% yield, although lower than its historical peaks, indicates a generally attractive return for dividend-focused investors. This is indicative that RELL has consistently prioritized returning value to shareholders through dividends, compared to the industry norm. However, the recent trend of yield decreasing from its 2020 highs suggests caution as it may reflect recent stock price performance or strategic reallocations within the company's financial framework.

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

Evaluating a company's dividend growth rate over a 20-year period is crucial as it helps to understand the long-term potential and financial stability of the company. A growth rate above 5% generally indicates a strong, growing company capable of rewarding its shareholders.

Upon examining Richardson Electronics (RELL) over the last 20 years, the dividend growth rate fluctuates drastically, encompassing periods of no dividends (2003-2008, 2014-2022), a significant dividend in 2011 (112.5), and negative changes in 2008 and 2023 (-50 each). These fluctuations reflect instability. The substantial declines and absence of dividends for extended periods indicate that RELL does not maintain a consistent dividend growth rate. Although RELL paid significant dividends in 2011 with 112.5 and positive average dividend ratios (2.4287), these are punctuated by negative growth and cancellations. Hence, this trend reveals a volatile dividend history, far from the stable 5% growth desired.

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

The average payout ratio indicates the proportion of earnings a company pays to shareholders in the form of dividends. A ratio lower than 65% typically suggests that the company retains a significant portion of its earnings for growth and expansion, suggesting financial stability.

The average payout ratio over the last 20 years for Richardson Electronics is approximately -22.63%. This negative payout ratio signifies that the company has faced multiple years with net losses, which is a red flag from a financial health perspective. The high volatility illustrated by the payout ratios ranging from -659.34% to 295.57% adds another layer of concern. Several years such as 2014 (-659.34%) and 2020 (-171.31%) are particularly alarming. Moreover, the years with positive payout ratios don't consistently fall below the 65% level, further reducing the attractiveness for dividend-oriented investors. Thus, Richardson Electronics has displayed poor dividend sustainability over the long term, making it a risky choice for dividend-focused portfolios.

Dividends Well Covered by Earnings?

Dividends being well-covered by earnings is crucial because it indicates that the company is generating enough profit to not only sustain but also potentially grow its dividend. This ensures financial stability and investor confidence.

Over the span of years from 2003-2023, Richardson Electronics (RELL) has shown fluctuating coverage of its dividends by its earnings. Notably, in several years, such as 2003 (-0.08) and 2019 (-0.4267), the dividends were not covered at all by earnings, which is a negative trend. However, in years like 2011 (0.034) and 2013 (2.956), there was a significant positive coverage. The most recent year, 2023, shows a coverage of 0.075, which is low but positive, suggesting a slight improvement. Overall, this inconsistency highlights a volatile trend and could be a concern for potential investors looking for stable dividend returns.

Dividends Well Covered by Cash Flow?

Analysis of whether dividends are well covered by cash flow requires comparing the available free cash flow to the amount paid out as dividends.

The ratio of free cash flow to dividend payout amount over the years shows a volatile trend with several years indicating negative coverage. For instance, in 2013, the ratio is -0.224, in 2014 it is 1.82, suggesting that for 2013, cash flow couldn't cover dividends but improved in 2014. Years like 2017 and 2018 also reflect poor coverage with ratios of -0.89 and -1.33. Even though 2020 shows a high ratio of 21.09, this could be an anomaly rather than a consistent pattern. Overall, Richardson Electronics seems to struggle in consistently covering its dividends with cash flow, which is unfavorable for the company's financial health.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends over decades reveal a company's consistent financial health and commitment to returning value to shareholders.

Richardson Electronics (RELL) has exhibited a mix of stability and inconsistencies in its dividend payments over the last 20 years. From 2003 to 2007, the dividend per share was consistently 0.16. However, in 2008 and 2009, it dropped to 0.08, representing a 50% reduction. The period from 2010 onwards saw generally stable dividends at $0.24 per share, but a notable recent decrease to $0.12 in 2023, which is another 50% drop. Given this historically inconsistent dividend policy, RELL may not meet the criterion of displaying stable dividends where annual payments didn't drop by more than 20% over two decades. Therefore, this trend is not favorable for income-seeking investors valuing stability.

Dividends Paid for Over 25 Years?

Criteria evaluates if the company has been reliably paying dividends for over 25 years to gauge stability and shareholder returns.

Richardson Electronics (RELL) has been consistently paying dividends for the past 25 years, as seen from the data. Although there was a modest reduction in 2009, with the dividend dropping from $0.16 to $0.08, the company resumed paying higher dividends subsequently. Apart from this reduction, the company has a track record of maintaining its dividend payments, which signifies stability and a commitment to rewarding shareholders. This historical consistency is a positive indicator for long-term investors who value dividend reliability.

Reliable Stock Repurchases Over the Past 20 Years?

Criterion of Reliable Stock Repurchases Over the Past 20 Years seeks to determine if a company has been consistently reducing its share count through buybacks. This is often interpreted as a signal of management's confidence in the company's future prospects and can be beneficial in increasing earnings per share. Examining the trend over 20 years provides a long-term view of the company's commitment to shareholder returns.

Over the last 20 years, Richardson Electronics (RELL) has shown some degree of commitment to share repurchases, indicated by share count reductions in the years 2006, 2011, 2012, 2013, 2014, 2015, 2016, and 2017. The average rate of repurchase over the period is approximately 41.78%, signifying a substantial effort to return value to shareholders in roughly 8 out of 20 years. However, this trend has not been consistent, with several years showing an increase in shares outstanding, notably in recent years (2022 and 2023). This inconsistent trend raises questions about the company's long-term strategy regarding share repurchases and suggests that while there have been periods of active buybacks, they do not adhere to a consistent repurchase policy. Therefore, reliance on stock repurchase as a marker for shareholder value needs to be nuanced with an understanding of other financial metrics and corporate strategies.