Last update on 2024-06-27

Charles Schwab (SCHW) - Dividend Analysis (Final Score: 5/8)

Charles Schwab (SCHW) receives a Dividend Score of 5/8, indicating stable and performative metrics, particularly in dividend coverage and payout ratios.

Short Analysis - Dividend Score: 5

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

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 a critical metric for income-focused investors, indicating the return on investment solely from dividends.

Charles Schwab's current dividend yield stands at 1.4535%, slightly lower than the industry average of 2.03%. Over the last 20 years, Schwab’s dividend yield has experienced significant fluctuations, with notable peaks in 2007 (4.6967%) and troughs in 2014 (0.795%). The trend indicates that Schwab’s yield has generally remained below the industry average. However, the steady increase in the dividend per share to $1 in 2023 shows a commitment to shareholder returns. Despite the lower yield, the increasing dividend per share and a relatively stable trend in recent years are positive indicators as they reflect Schwab's improving financial health and shareholder-friendly policies.

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

The Dividend Growth Rate is a measure of the annualized percentage rate of growth that a certain stock's dividend undergoes over a period of time. It is significant as an indicator of the company’s financial health and management’s confidence in sustainable profitability.

Analyzing the data for Charles Schwab (SCHW) over the past 20 years, the Dividend Growth Rate is quite erratic. For instance, years such as 2007 showcase an extraordinary increase at 788.8889%, whereas years like 2008 show a negative growth of -81.6667%. The mean Dividend Growth Rate stands at 48.75887%, significantly higher than the 5% criterion. However, the inconsistency and periods of no dividend growth or even decline reflect unsteady financial performance. Such inconsistency may concern investors relying on dividends as a stable income stream despite the overall average being favorable.

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

The average payout ratio for Charles Schwab (SCHW) should be lower than 65% to ensure the company is reinvesting sufficient earnings into growth and maintaining a buffer for potential downturns.

Based on the provided data, the average payout ratio of Charles Schwab (SCHW) over the past 20 years is approximately 28.997%. This figure is significantly lower than the 65% benchmark, which is a positive indicator. A lower payout ratio implies that the company is retaining more of its earnings for reinvestment in its core business, which can contribute to long-term growth and sustainability. Furthermore, maintaining such a payout ratio demonstrates prudent financial management, providing a buffer during economic downturns or unexpected financial challenges. Hence, this trend of keeping the payout ratio well below the 65% threshold is favorable for Charles Schwab.

Dividends Well Covered by Earnings?

Dividends are well covered by earnings

To determine if dividends are well covered by earnings, the primary metric analyzed is the payout ratio, which is the percentage of earnings paid out as dividends to shareholders. A ratio below 100% indicates that the company is generating enough earnings to cover its dividends, thereby suggesting sustainability. The Earnings per Share (EPS) of Charles Schwab have generally been higher than its Dividend per Share over the specified period from 2003 to 2023. The coverage ratio consistently being above 0.1 indicates a healthy dividend coverage. Additionally, the fact that the EPS has shown an increasing trend with slight fluctuations, going from 0.346 in 2003 to 2.778 in 2023, while the Dividend per Share has increased from 0.049 to 1 over the same period, reinforces the confidence in the company’s ability to cover its dividends. This trend is considered good for the sustainability of dividends, given that the company continues to maintain its earnings growth.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow indicate a company's ability to generate enough cash to pay its dividends comfortably. This criterion helps in assessing the dividend sustainability.

Analyzing the free cash flow and dividend payout of Charles Schwab (SCHW), we can observe significant fluctuations over the years. For instance, in 2023, the free cash flow stood at $18.887 billion while the dividend payout was $2.276 billion, resulting in a coverage ratio of approximately 0.1205. This implies the company generated much more cash than it paid out as dividends, which is a good indicator for investors concerned about dividend sustainability. However, in some years such as 2008 and 2010, the coverage ratios were negative, indicating that free cash flow was not sufficient to cover the dividends. Overall, the trend is mostly good, especially in the recent years, but the inconsistency in coverage across the years might be concerning.

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.

If we examine the dividend per share from 2003 to 2023, it's clear that Charles Schwab has maintained a relatively stable trend in its dividend payouts, with only slight fluctuations and no periods of significant decline (i.e., 20% or more). For example, the dividend increased substantially from $0.049 in 2003 to $1.00 in 2023. Even during the Global Financial Crisis of 2008, while there was a substantial drop from $1.2 in 2007 to $0.22 in 2008, the dividend did not drop by a full 20% from its previous year. This resilience in dividend payouts underscored by periods of incremental growth, which—is crucial for income-seeking investors. 

Dividends Paid for Over 25 Years?

The criterion looks at whether a company has been consistently paying dividends for over 25 years.

Charles Schwab (SCHW) has paid dividends consistently for over 25 years, starting from as low as $0.036 per share in 1998 to $1 per share in 2023. This long history of dividend payments is a good indicator of the company’s financial health and stability. Their commitment to shareholders is evident, with significant increments over the years, such as a jump to $1.2 in 2007, although it appears the figure may have faced adjustments during economic downturns. Sustained dividend payments reinforce confidence in SCHW’s financial management and profitability. Overall, this trend is favorable, suggesting a strong and stable dividend policy.

Reliable Stock Repurchases Over the Past 20 Years?

The criterion for reliable stock repurchases refers to a company's ability to consistently buy back its own shares over an extended period. This strategy is important as it often signals management's confidence in the firm, enhances shareholder value by reducing the number of shares outstanding, and can return excess cash to shareholders.

Charles Schwab has engaged in reliable stock repurchases in several years over the past two decades, notably in 2005, 2006, 2007, 2008, 2019, 2022, and 2023. The company's outstanding shares decreased during these periods, indicating a strategic effort to repurchase shares. Between 2003 and 2023, the number of outstanding shares varied, with notable reductions, demonstrating a pattern of share repurchases, but also periods of share issuance or less purchasing activity. An average repurchase of 1.7194 over 20 years signifies a moderate but relatively consistent repurchasing trend. While some fluctuations exist, the overall trend suggests a positive, albeit cautious, approach towards buybacks, which can be seen as beneficial for long-term shareholder value.