Last update on 2024-06-27

Raytheon Technologies (RTX) - Dividend Analysis (Final Score: 6/8)

Raytheon Technologies (RTX) dividend analysis: 6/8 score, assessing stability, growth, and yield for 2023. Ideal for income-focused investors.

Short Analysis - Dividend Score: 6

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

This dividend analysis looks at Raytheon Technologies (RTX) and its performance in paying consistent and growing dividends using an 8-criteria scoring system. RTX has a dividend yield of 2.7573%, much higher than its industry's 1.16%, making it attractive for income seekers. While dividend growth rates are inconsistent and average below 5%, they show a commitment to dividends. RTX maintains a low payout ratio of 25.56%, suggesting sustainable dividend policies. Dividends are consistently covered by both earnings and cash flow, despite occasional dips like in 2020. RTX has paid stable dividends for over 25 years and has progressively increased them from $0.3571 in 2003 to $2.32 in 2023. It also has a reliable history of stock repurchases, indicating strong financials and shareholder value commitment.

Insights for Value Investors Seeking Stable Income

Based on this analysis, Raytheon Technologies (RTX) appears to be a steady and reliable choice for dividend-seeking investors. It offers a high yield, stable payout, and strong financial health. The occasional growth inconsistencies do exist but are balanced by the company's robust policies and long-term commitment to shareholders. If you are looking for consistent dividend income and potential capital appreciation, RTX could be a good stock to consider for your investment portfolio.

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 essentially the return on investment in terms of dividends that a shareholder receives per share. It is calculated as annual dividends per share divided by the stock price. This metric is crucial because it illustrates the income generated from dividends relative to the investment and allows investors to compare the income-generating potential of different stocks irrespective of their price levels.

Raytheon Technologies (RTX) currently boasts a dividend yield of 2.7573%, significantly higher than the industry average of 1.16%. This demonstrates that RTX is far more attractive in terms of dividend income compared to its industry peers. Over the last 20 years, RTX's dividend yield has shown various fluctuations, reaching a high of 2.6647% in 2015 but has maintained an upward trend, ending at its highest value in 2023. In contrast, the industry average has shown more variability, spiking notably in certain years, such as 2008 (3.46%) and 2012 (4.21%). This consistent trend in maintaining a superior dividend yield by RTX is beneficial for investors seeking steady income streams. Furthermore, with a stock price exhibiting growth over these years, from $29.82 in 2003 to $84.14 in 2023, and dividends per share also climbing from $0.3571 in 2003 to $2.32 in 2023, the company displays robust financial health and a commitment to rewarding its shareholders. Thus, the outlook on this trend is positive and underscores the strength of RTX's dividend policy.

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

The dividend growth rate measures how much a company's dividend payments have increased, on average, over a span of time. For long-term investors, a higher growth rate is preferable as it implies increasing returns on their investment.

The dividend per share ratio for Raytheon Technologies from 2003 to 2023 does not exhibit a consistent upward trend. For instance, the dividend ratio was 15.825 in 2003 and has seen fluctuations, dipping to as low as 2.016 in 2020 before rebounding to 7.4074 in 2023. This represents a compounded annual growth rate (CAGR) that isn't consistently above 5%. Additionally, given the average ratio of approximately 10.26 and the inconsistent fluctuations, it cannot be deemed a strong indicator of robust growth for dividend investors. Such a trend indicates a lack of stability in dividend payouts, suggesting possible challenges in sustaining dividend growth over long periods. Therefore, for investors seeking consistent, high dividend growth, this trend is not particularly favorable.

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

Average Payout Ratio lower than 65% over the last 20 years reflects the company's ability to sustainably maintain its dividend payouts relative to earnings. This is essential for long-term investors as it indicates financial stability and prudency in capital allocation without compromising growth.

Raytheon Technologies (RTX) has maintained an average payout ratio of 25.56% over the last 20 years, which is well below the threshold of 65%. This trend is exceptionally good as it demonstrates that the company has been paying dividends in a conservative manner relative to its earnings. Lower payout ratios generally imply that a company has ample room to maintain and possibly increase its dividends during economic downturns. Furthermore, it also suggests that the company retains a significant portion of its earnings for reinvestment, promoting future growth. The extremely high payout ratios in 2020 (over -72%) and 2021 (77.92%) stand out due to likely extraordinary circumstances, such as impacts from the COVID-19 pandemic, but the overall long-term average remains robust which is a positive sign.

Dividends Well Covered by Earnings?

Why it is important for dividends to be well covered by earnings.

The Earning per Share (EPS) and Dividend per Share (DPS) values of Raytheon Technologies (RTX) for the past two decades illustrate a key financial metric: Dividends Covered by Earnings. A payout ratio that ensures earnings sufficiently cover dividends indicates sustainability. Generally, a ratio below 1 signals potential deficit. RTX consistently reports an EPS exceeding its DPS, showcasing a positive trend until 2019, affirming dividends are well covered by earnings (e.g., EPS: 6.4775 vs. DPS: 1.8502 in 2019). This coverage implies stable dividend payments, enhancing investor confidence. Notable dips such as 2020 (-0.7283) due to negative EPS reflect anomalies/disruptions rather than systemic issues.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow is a critical criterion for assessing the sustainability of a company's dividend payments. It examines whether the free cash flow generated by a company is sufficient to cover the dividend payments. If dividends consistently exceed cash flow, it could indicate financial distress or borrowing to cover dividends, which is unsustainable in the long run.

First, let's observe the trend in Free Cash Flow (FCF) for Raytheon Technologies over the past 20 years. The FCF has generally been positive, except for some years like 2020 where it saw a significant drop possibly due to extraordinary circumstances such as economic downturns or business restructurings. Between 2003 and 2023, FCF has grown from approximately $2.345 billion to $4.717 billion. Next, let's delve into the Dividend Payout Amount over the same period. It shows a consistent increase from $533 million in 2003 to $3.239 billion in 2023. It's evident that Raytheon has been diligent in returning value to its shareholders through dividends. Now, focusing on the most critical aspect—Dividend Covered by Cash Flow—it fluctuates over the years. For most years, this ratio stays below 1, indicating that FCF adequately covers dividend payments. Critical years include 2016 (1.15) and 2020 (1.67), where dividends exceeded FCF, signaling potential financial challenges. However, the overall trend seems stable, and the company appears to adjust dividends according to its free cash flow capabilities. The downward trend in 2021, 2022, and 2023 where the coverage ratios are 0.64, 0.71, and 0.68 respectively shows improvement compared to 2020, which greatly enhances the sustainability outlook. Consequently, despite occasional dips, Raytheon Technologies appears to manage its dividend payments prudently concerning its free cash flow, thus garnering a positive outlook on this criterion.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments over the past twenty years ensures consistency and reliability for investors who depend on dividend income. Companies that consistently pay stable or increasing dividends are generally seen as financially healthy and reliable.

Over the past 20 years, Raytheon Technologies (RTX) has demonstrated a robust performance in terms of dividend stability. The dividend per share has progressively increased from $0.3571 in 2003 to $2.32 in 2023. At no point did the dividends drop by more than 20%, which signifies a strong, stable dividend policy that should appeal to income-seeking investors.

Dividends Paid for Over 25 Years?

Discuss the significance of a company paying dividends for over 25 years and its implications for investors.

Raytheon Technologies (RTX) has demonstrated a consistent track record of paying dividends for over 25 years, as evidenced by the provided data from 1998 to 2023. Since 1998, the dividend per share has grown from $0.219 to $2.32 in 2023. This consistent dividend payment history is an excellent indicator of the company's stability and financial health. For investors, it suggests that the firm has a reliable stream of earnings and a strong commitment to returning capital to its shareholders. This can be particularly appealing for income-focused investors or those looking for long-term value retention. Overall, this trend is very favorable.

Reliable Stock Repurchases Over the Past 20 Years?

Explain the criterion for Raytheon Technologies (RTX) and why it is important to consider

A reliable stock repurchase program suggests company stability, strong cash flow, and commitment to returning value to shareholders. Stock repurchases often indicate that the company believes its own stock is undervalued or that it has excess cash. For Raytheon Technologies (RTX), evaluating the number of shares repurchased over the past 20 years can provide insight into the company's financial health and management's confidence in its business.