Last update on 2024-06-27

1st Source (SRCE) - Dividend Analysis (Final Score: 5/8)

Analyze the performance and stability of 1st Source (SRCE) dividend policy using an 8-criteria scoring system. Final Dividend Score: 5/8

Short Analysis - Dividend Score: 5

We're running 1st Source (SRCE) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

After carefully reviewing the dividend analysis of 1st Source (SRCE) using an 8-criteria scoring system, here are the key findings: 1. **Dividend Yield**: SRCE's current dividend yield of 1.1647% is below the industry average of 2.76%. This indicates that its yield is not competitive compared to peers, and there's a declining trend. 2. **Dividend Growth Rate**: The dividend growth rate averages 4.4987%, slightly under the desired 5%, showing inconsistencies and volatility. 3. **Payout Ratio**: SRCE boasts a low average payout ratio of 34.52%, signifying prudent earnings retention for growth. 4. **Dividend Coverage by Earnings**: Generally, dividends are well covered, despite fluctuations. 5. **Dividend Coverage by Cash Flow**: Although dividends are covered by cash flow, recent lower ratios present a slight concern. 6. **Stable Dividends**: While dividends were stable for many years, a significant drop in 2023 is alarming for income investors. 7. **Dividend History**: SRCE has a lengthy history of paying dividends, reflecting long-term commitment to shareholders. 8. **Stock Repurchases**: Demonstrates reliable stock repurchases, enhancing shareholder value.

Insights for Value Investors Seeking Stable Income

Given the thorough analysis of 1st Source (SRCE)'s dividend policies, a mixed picture emerges for potential investors. Positives include a long history of dividend payments, reliable stock repurchases, and a conservative payout ratio. However, recent declines in dividend yield and value, along with inconsistent growth rates, are concerning. If you're a dividend-focused investor, it might be worth monitoring 1st Source (SRCE) further, especially to see if they can recover stability and growth in their dividends going forward.

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 important because it gives investors an idea of the income they can earn from holding a stock.

The current dividend yield of SRCE at 1.1647% is significantly below the industry average of 2.76%. Historically, the company has demonstrated higher dividend yields, notably peaking at 3.6669% in 2009. However, there has been a pronounced decline over the past several years. The most recent yields indicate a troubling downtrend with 2023 being the lowest in two decades. This low yield can be partly attributed to the rising stock price, but it is also concerning for investors seeking consistent dividend income. Furthermore, the reduction in dividend per share to $0.64 in 2023 from a peak of $1.26 in previous years suggests potential underlying issues with profitability or cash flow. While the stock price has seen some stability and growth, the diminishing yield could deter dividend-focused investors, marking this trend as unfavorable.

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 over a period, indicating its growth trend and financial health. A growth rate over 5% suggests steady expansion.

Upon analyzing the dividend per share ratio for 1st Source (SRCE) over the last 20 years, fluctuations are evident, varying from -49.2063% in 2023 to an impressive 26.3158% in 2018. While some years saw substantial growth, such as 2004 with 13.497% and 2018 with 26.3158%, other years presented declines, notably 2023. The average dividend ratio stands at 4.4987%, reflecting moderate growth but just under the desired 5%. This trend depicts an inconsistent dividend growth rate, signaling volatility rather than stable expansion. Consequently, we cannot affirm the criterion that the dividend growth rate is consistently above 5%, which could be viewed as a negative indicator for potential investors seeking steady dividend income.

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

The average payout ratio is a metric that measures the percentage of earnings that a company pays to its shareholders in the form of dividends. A payout ratio lower than 65% indicates that the company retains a significant portion of its earnings to reinvest in the business, which is usually seen as a healthy, sustainable practice.

1st Source (SRCE) has consistently maintained its average payout ratio at around 34.52% over the last 20 years. This is significantly lower than the 65% threshold, indicating a conservative approach in paying dividends while retaining ample earnings for reinvestment and growth. For instance, the payout ratio peaked at 61.66% in 2009 likely due to financial strains, but quickly corrected in subsequent years. In recent years, 2020 and 2021 had payout ratios of 35.42% and 25.56% respectively, showcasing the continued discipline. The near zero ratio in 2023 either reflects a calculation anomaly or an even more conservative stance, further underlining the company's robust financial health.

Dividends Well Covered by Earnings?

Dividends being well-covered by earnings mean that a company's net income is sufficient to pay its shareholders dividends, thereby indicating financial health and sustainability.

Analyzing the EPS and DPS of 1st Source (SRCE) from 2003-2022, it is evident that the dividend coverage ratios fluctuate. Despite variations, the dividend coverage generally remains above 25%, indicating that the company manages to cover dividends using earnings. Specifically, the dip in ratios during 2007-2009 and 2021 show areas of financial stress yet surmountable. Overall, the trend is healthy, showing a prudent financial strategy, despite lower ratios in recent years.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow indicate that a company generates sufficient cash flow to sustain its dividend payments. A higher ratio of cash flow coverage to dividends suggests financial stability and the ability to maintain or grow dividend payouts.

From the data, we observe several key trends. 1st Source (SRCE) has had rather fluctuating free cash flow coverage of its dividend payouts over the years. For instance, between 2003 and 2023, the coverage ratio oscillated, spiking significantly in the year 2009 to 1.25 which suggested a capacity to easily cover its dividends more than once with its free cash flow. However, since 2009, the trend has moderated and stabilized around 0.2, with minor fluctuations. In 2023, the cash flow coverage ratio of dividends stood at approximately 0.18. While it shows that the company has consistently managed to cover its dividends from cash flow, the relatively lower figures indicate a conservative margin. In periods where this ratio was higher (e.g., 2009), the company exhibited stronger financial capacity to support and potentially grow its dividend without risking liquidity. Overall, SRCE has demonstrated an ability to use its free cash flow effectively to pay dividends, but the downward trend over the years might be cause for some closer scrutiny.

Stable Dividends Since the Company Began Paying Dividends?

Discussing the stability in dividend payments over the past 20 years where the dividend per share should not drop by more than 20% is important for income-seeking investors as it reflects the company's financial health and commitment to returning value to shareholders.

Reviewing 1st Source (SRCE)'s dividend payments over the past 20 years, we observe a consistent increase with marginal fluctuations. However, there is a significant drop in the last year (2023), where the dividend per share dropped to $0.64 from $1.26 in 2022, representing a 49.2% decrease. Such a drop is concerning for income-seeking investors as it indicates potential trouble or strategic changes within the company that affect dividend stability. Despite this, the long-term trend prior to 2023 was notably positive, suggesting past strength in financial performance and commitment to shareholder returns. Moving forward, it is crucial to monitor subsequent dividends for a return to stability.

Dividends Paid for Over 25 Years?

Explain the criterion for 1st Source (SRCE) and why it is important to consider

The criterion of paying dividends for over 25 years is crucial because it reflects a company's commitment to returning value to shareholders. Consistent dividend payments, especially over multiple decades, suggest a strong financial foundation, reliable cash flow, and sound management practices. For 1st Source (SRCE), the dividend per share data from 1998 to 2023 shows a generally increasing trend, with only minor fluctuations. This indicates a positive long-term commitment to shareholders, underlining SRCE's financial stability and growth. Despite the dip in 2023, the long-term trend remains remarkably robust, making this criterion a strong affirmation of SRCE's shareholder value orientation.

Reliable Stock Repurchases Over the Past 20 Years?

reliable stock repurchases

1st Source (SRCE) has exhibited a trend of consistent stock repurchase over the past two decades, with particular years standing out. The years 2004, 2005, 2006, 2009, 2014, and 2015, among others, showcase significant repurchase actions. Notably, the average repurchase over this period stands at -5.1464%. Overall, this indicates a deliberate effort by SRCE to return value to shareholders, which is typically a positive signal.