Last update on 2024-06-27

ResMed (RMD) - Dividend Analysis (Final Score: 6/8)

Discover ResMed (RMD) dividend analysis with a score of 6/8, highlighting performance, stability, and growth in dividends. Ideal for income-focused investors.

Short Analysis - Dividend Score: 6

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

Based on an 8-criteria system, ResMed (RMD) scored a 6 for its dividend policy. ResMed's dividend yield is generally higher than the industry average, making it attractive for income-focused investors. The company has a strong average annual dividend growth rate, significantly above 5%. However, its average payout ratio is alarmingly high, especially between 2010 and 2017, raising concerns about dividend sustainability. Although the company's earlier earnings comfortably covered dividends, recent years have shown a decline in coverage, raising red flags. Dividends have mostly been covered by free cash flow, but there have been fluctuations. ResMed has not consistently paid dividends for over 25 years, making its track record less stable. The company has repurchased stock sporadically, which directly impacts shareholder value.

Insights for Value Investors Seeking Stable Income

While ResMed has attractive features like a strong dividend yield and growth rate, the high average payout ratio and declining earnings coverage in recent years are concerning. Potential investors should proceed with caution, paying close attention to recent financial trends and the company's ability to sustain its dividend payments in the long run. It's worth looking into if the company can maintain improvements in its payout ratio and earnings coverage.

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 financial ratio that shows how much a company pays out in dividends each year relative to its stock price. It is an important metric for income-focused investors.

ResMed's (RMD) current dividend yield is 1.0696%, which significantly exceeds the industry average of 0.67%. Over the past 20 years, ResMed's dividend yield has experienced fluctuations but has generally showed an upward trend. For instance, in 2013, it spiked to 1.7842% and reached as high as 2.1606% in 2015. Comparatively, the industry average has remained fairly stable and below ResMed's yield in most years. Despite recent declines, the 2023 yield is a solid improvement over the yields in 2020 and 2021 but is still lower compared to its peak years. This higher yield indicates that ResMed offers a better return on investment through dividends compared to many of its industry peers. Therefore, this trend is favorable for dividend-seeking investors, making ResMed an attractive option despite some variability.

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

The Dividend Growth Rate measures how fast a company's dividend payments have increased over a specified period, typically reflecting the company's ability to generate cash flow and its commitment to returning value to shareholders. A growth rate higher than 5% indicates a robust and expanding dividend, which is typically seen as a positive sign for investors.

When analyzing ResMed's dividend growth rate over the past 20 years, the dividend per share has seen variable growth with values such as 147.0588 in some years and as low as 2.6316 in others. The average dividend growth rate stands at approximately 10.97%, which is well above the 5% threshold. This indicates that ResMed has maintained a strong capacity to grow its dividend payouts on average. This is a positive trend, suggesting resilience and a strong ability to generate returns for investors, although the high variability could suggest some inconsistency in their payout strategy. Overall, with an average growth rate significantly above 5%, ResMed demonstrates a solid dividend growth trajectory.

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

average payout ratio over the past 20 years

The historical data of ResMed's payout ratio indicates significant fluctuations over the past 20 years, with strikingly high ratios in the mid-2010s before normalization in recent years. Specifically, the average payout ratio stands at 163.95%. Such a high average is concerning for any long-term investor interested in dividend stability and sustainability. From 2010 to 2017 especially, payout ratios were above 400%, culminating in a peak of 656.93% in 2018, which is unsustainable by any measure. The sharp decline post-2018, with figures stabilizing below 50%, shows potential improvements; however, these recent positive signals can’t fully mitigate the previous unsustainable payout periods. This trend poses questions about the company's historical allocation of earnings and raises red flags about its dividend consistency. Investors should proceed with caution given the historical volatility.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings

For ResMed (RMD), covering dividends by earnings is an essential criterion as it ensures sustainability and reliability for income-focused investors. The goal is typically a dividend coverage ratio of at least 2:1 to assure that earnings sufficiently cover the dividend payments. The earnings per share (EPS) for ResMed has shown a generally upward trend over the past two decades, particularly spiking in recent years, suggesting robust profitability. Examining the dividend coverage ratios from 2012 to 2023 reveals cautionary details. The coverage ratios were robust between 2012 and 2017, all above 4. This indicates that ResMed's dividends were comfortably covered by its earnings during that period, signifying financial health. However, post-2018, the coverage ratio sharply declined, only reaching a peak ratio of around 0.537 in 2018, and fluctuating very close to or below 1.0 in subsequent years. Specifically, the ratio has been below the optimal level of 2:1 in recent years, with a concerning low of 0.3008 in 2023. This trend may point to potential sustainability issues and raises a red flag for dividend investors. In conclusion, while ResMed's past earnings did cover its dividends quite well, declining coverage in recent times may signal financial stress or reallocation of earnings. Favorable trend until 2017, decline post-2018 is unfavorable for the given criterion.

Dividends Well Covered by Cash Flow?

This criterion examines whether a company's dividend payments are well-covered by its free cash flow. A higher ratio indicates healthy coverage, which can be a sign of sustainable and reliable dividend payments.

From 2003 to 2010, ResMed did not pay any dividends; thus, the Dividend covered by Cashflow is 0 for these years. Between 2011 and 2015, the percentage of dividends covered by cash flow ranges from approximately 29.4% to 50.5%, reflecting moderate coverage. The spread indicates some volatility but acceptable coverage levels. From 2016 to 2020, ratios between 32.3% and 55.4% signal improving and adequate coverage. Strikingly, 2021 witnessed a surge in this ratio to 125.7%, showcasing an excellent coverage level and indicating significant excess cash flow over dividend payouts. However, the ratio drops to 46.2% in 2022 and 2023, which, although lower than the previous two years, still demonstrates a reasonable level of coverage and suggests that ResMed's dividends are adequately covered by its free cash flow. Overall, despite some fluctuations, the trend indicates a mostly positive ability to cover dividends with free cash flow.

Stable Dividends Since the Company Began Paying Dividends?

Explain the criterion for ResMed (RMD) and why it is important to consider

Stability in dividend payments, where the dividend per share did not drop by more than 20% over the past two decades, is circumstantial for income-seeking investors. It indicates resilience and consistency in earnings and cash flows, reassuring investors of a reliable income source.

Dividends Paid for Over 25 Years?

Explain the criterion for ResMed (RMD) and why it is important to consider

The importance of a company paying dividends for over 25 years lies in its indication of reliability and financial health. Consistent dividend payments demonstrate sustainable earnings and a shareholder-friendly management. For ResMed, assessing this criterion helps understand its track record in returning value to shareholders.

Reliable Stock Repurchases Over the Past 20 Years?

the importance of reliable stock repurchases and their impact on shareholder value

The data reveals ResMed has indeed repurchased shares in various years, particularly since the financial crisis of 2008-2009. Notable repurchase years include 2009, 2012, 2013, 2014, 2015, 2016, and 2019. With an average repurchase rate of -4.1306% over 20 years, decreasing share count can amplify earnings per share (EPS) and signal confidence from management in the company's prospects. However, consistency in repurchase strategy seems sporadic.