Last update on 2024-06-27

Constellation Brands (STZ) - Dividend Analysis (Final Score: 5/8)

Get an in-depth analysis of Constellation Brands' (STZ) dividend stability and performance with a comprehensive 8-criteria scoring system.

Short Analysis - Dividend Score: 5

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

The analysis reviewed Constellation Brands (STZ) using an 8-criteria system to see how stable and reliable its dividend policy is. While STZ showed growth in their dividend yield and payments, starting dividends only in 2015, it still lags behind the industry average (1.43% vs. 2.66%). The dividend growth rate averaged 7.45%, but it was inconsistent. Likewise, the payout ratio was erratic, hinting at financial instability, with recent earnings not covering dividends. Their dividend history is short but growing steadily since 2015. Also, STZ showed modest stock buybacks, enhancing shareholder value.

Insights for Value Investors Seeking Stable Income

Constellation Brands (STZ) shows some positive trends such as increasing dividends and consistent stock repurchases. However, lower than average dividend yield, negative payout ratios, and the lack of a 20+ year dividend history suggest financial instability and risk, especially for conservative, income-focused investors. Investing in STZ might be more suitable for those interested in potential future growth and total returns rather than immediate, stable income. Prospective investors should proceed with caution and consider their investment goals thoroughly.

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 signifies the ratio of a company's annual dividend relative to its stock price. It is an essential measure for assessing the income-generating potential of an investment relative to its price.

As of 2023, Constellation Brands (STZ) has a dividend yield of 1.4354%, which is notably lower than the industry average of 2.66%. Over the past 20 years, Constellation Brands’ dividend yield has demonstrated significant progression. Notably, starting from a figure of 0% until 2014, the company introduced its first dividend yield in 2015 at 0.6529%. Since then, the yield has experienced periodic increases, reaching its current value in 2023. This trend indicates an upward trajectory in Constellation Brands’ yield payouts, aligning it closer to the industry standard over time. However, despite this growth, the current yield remains beneath the industry average by a good margin. For income-focused investors, this lower yield indicates that Constellation Brands may not offer competitive passive income relative to its industry peers. Simultaneously, the consistent rise in dividend payouts demonstrates the company’s increasing commitment to shareholder returns, which could be viewed favorably from a total return perspective.

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

Dividend Growth Rate is a crucial metric that reflects the pace at which a company increases its dividend payouts to shareholders. A higher growth rate suggests financial health and strong earnings prospects.

Based on the Dividend Per Share Ratio from 2003 to 2023, Constellation Brands (STZ), we observe considerable fluctuations including many years of zero dividends. The dividend growth seems inconsistent with drastic changes such as a peak of 62.3656 in 2016 and subsequent dramatic drops. The average dividend growth rate of 7.45% obscures these spikes. Such inconsistency indicates volatile dividend policy, which might concern conservative investors looking for steady income. Although the average growth exceeds 5%, its irregularity poses significant risk, making this trend appear generally unsteady.

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

Explain the criterion for Constellation Brands (STZ) and why it is important to consider

The Average Payout Ratio for the last 20 years is -340.71%. To evaluate if it meets the criterion of being lower than 65%, we check if it falls within that threshold. A payout ratio significantly outside this range suggests substantial inconsistencies. An average as significantly negative as this one indicates periods of negative earnings, which reflect financial instability.

Dividends Well Covered by Earnings?

Dividends are well covered by earnings means that the company generates sufficient profits to support its dividend payouts. This indicates financial stability and the capability to sustain or potentially increase dividends.

Over the span of 2003 to 2023, Constellation Brands (STZ) shows periods of inconsistency in its earnings per share (EPS). Notably, in the years 2008, 2009, 2020, 2022, and 2023, the EPS turned negative, resulting in a negative or non-existent dividend coverage ratio in those years. However, from 2015 onwards, the company started paying dividends and initially, the dividends per share were relatively well-covered, as shown by the coverage ratios of around 22.30% to 29.35% from 2015 to 2017. This period aligned with increasing EPS figures, peaking at 17.57 in 2019 with a dividend coverage ratio of 17.02%. Unfortunately, recent years (2020 onwards) have displayed troubled performance, with significant negative EPS figures and negative coverage ratios (e.g., -48.70 in 2020). These negative ratios indicate that the company's earnings are insufficient to cover the dividends. The recent trend is concerning as it suggests potential unsustainability in maintaining current dividend levels.

Dividends Well Covered by Cash Flow?

Explain the criterion for Constellation Brands (STZ) and why it is important to consider

This criterion measures whether the dividends paid by a company are supported by its free cash flow. Evaluating the free cash flow against the dividend payout helps investors understand if the company generates sufficient cash to cover its dividends without compromising its financial stability. If free cash flow consistently exceeds dividend payouts, this trend indicates good financial health and sustainability of dividends.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends over the past 20 years means dividends did not drop by more than 20%.

Constellation Brands (STZ) has shown a relatively short history of dividend payments, starting only in 2015. Since then, dividends have consistently increased from $0.93 per share to $3.47 per share in 2023. This is a growth trend and indicates solid dividend performance. However, as the company only started paying dividends in 2015, assessing stability over the past 20 years is somewhat misleading. Notably, there have been years with no dividend payments prior to 2015 as opposed to a drop in dividend payments by 20%, hence, it lacks a prolonged history to consider. For income-seeking investors who prioritize long-term stability, the uninterrupted growth trend seen in more recent years is positive, but the absence of historical data beyond 2015 remains a cautious consideration. As a result, STZ doesn't fully meet the criterion of a 20-year stable dividend payment history but shows promising signs of consistent recent growth.

Dividends Paid for Over 25 Years?

Dividends Paid for Over 25 Years

Examining a company's history of paying dividends over an extended period, such as 25 years, is crucial. It highlights the company's ability and commitment to return value to its shareholders consistently. It also reflects financial stability and sustainability, important indicators for long-term investors.

Reliable Stock Repurchases Over the Past 20 Years?

Methodical stock buybacks demonstrate a company's commitment to returning value to shareholders by reducing the number of outstanding shares, thus potentially raising the stock price.

Constellation Brands has demonstrated a consistent approach to stock repurchases with notable years being 2008, 2009, 2011, and recently 2019, 2020, and 2022. Average yearly share reduction stands at approximately 0.3922%, which, although not very aggressive, signifies a steady buyback strategy. This trend is beneficial for long-term investors as it indicates the management's confidence in the company's future prospects and its commitment to enhance shareholder value.