Last update on 2024-06-27

Teradyne (TER) - Dividend Analysis (Final Score: 6/8)

Explore Teradyne's (TER) dividend with a robust 8-criteria analysis, delivering a final score of 6/8 and deep insights into performance and reliability.

Short Analysis - Dividend Score: 6

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

This analysis evaluates the performance and stability of Teradyne's (TER) dividend policy using an 8-criteria scoring system and gives the company a score of 6. Main points include: 1. Teradyne's dividend yield of 0.4055% is higher than the industry average (0.34%), showing potential income for investors. 2. The company's average dividend growth rate is 4.75%, below the 5% threshold, indicating inconsistent growth with multiple years of no dividends. 3. The payout ratio is very conservative, averaging 2.4763%, well below the threshold of 65%, suggesting financial prudence. 4. Earnings coverage for dividends has improved but remains low, showing potential yet inconsistent ability to cover dividends adequately. 5. Dividend payments have been unstable with several missed years, implying lack of consistency and low reliability for income-focused investors. 6. Dividend payments began in 2014, lacking the 25-year history many long-term investors seek. 7. Recent trends in cash flow coverage are positive but require more data for long-term assessment. 8. Stock repurchases have been consistent, showing effective capital management and return to shareholders.

Insights for Value Investors Seeking Stable Income

Teradyne is a mixed bag for investors. Its higher-than-average dividend yield is appealing, especially with the company’s conservative payout ratios. However, its dividend growth rate is less consistent, and it has not paid dividends continuously over the last 20 years. The earnings coverage for dividends has room for improvement, suggesting potential financial instability. While stock repurchases are a positive sign, the lack of a long dividend history may deter long-term income-focused investors. For investors prioritizing capital gains and conservative payout policies, Teradyne may be a good option. For those seeking stable and reliable dividend income over many years, it might be better to look elsewhere.

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 measures the annual dividends paid out by a company as a percentage of its stock price. It shows the return on investment from dividends alone. Higher yield can indicate an investment with better income potential, but also might suggest that the stock price has fallen.

As of 2023, Teradyne's (TER) dividend yield stands at 0.4055%, which is higher than the industry average of 0.34%. Examining the historical data, TER's dividend yield fluctuated significantly over the past two decades, reaching a high of 1.1611% in 2015 and a low of 0.2446% in 2021. Since initiating dividends in 2014, yield has declined overall in recent years. TER’s stock price has increased from $25.45 in 2003 to $108.52 in 2023, which inversely correlates to the yield. A high stock price compared to dividends paid reduces yield despite the absolute value of dividends increasing. This trend suggests that TER's stock is potentially seen as a high-growth stock, where capital gains are prioritized over dividend returns. Nonetheless, TER's current yield being above the industry average is a positive sign for income-focused investors. The sustained dividend payments also affirm the company's commitment to returning profits to shareholders, although the fluctuation in yield may concern conservative investors.

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

Criterion 1.1 refers to whether the company's dividend growth rate has been higher than 5% annually over the past 20 years.

Analyzing Teradyne (TER) based on the provided dividend data from 2003 to 2023, we see that the dividend payment has been highly inconsistent. For several years, the company paid no dividends (2003-2011, 2013, 2017, 2019, 2021, and 2023). During the years it did pay dividends, the growth rates were erratic, ranging from 10% in 2023 to as high as 33.3333% in 2015. The average dividend growth rate over this period is approximately 4.75%, which is below the 5% threshold. Therefore, TER's dividend growth rate does not meet the criterion of being above 5% over the last 20 years. The inconsistency and relatively low average suggest that the company’s dividend policy might not be reliable for income-focused investors.

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

Average Payout Ratio lower than 65% in the last 20 years and why it is important to consider

Analyzing the provided data, it is clear that Teradyne (TER) has demonstrated a highly conservative approach toward its payout ratio. Out of the values provided from 2003 to 2023, most years recorded a payout ratio of 0%, indicating no dividends were paid out during those years. The highest payout ratio recorded was 49.2881% in 2014. In some instances, such as in 2016, there was a negative payout ratio of -111.9925%, which typically signals either a loss year or adjustments. The average payout ratio over the last 20 years stands at 2.4763%, significantly lower than the 65% threshold. This trend indicates prudent financial management and a focus on reinvestment as opposed to high dividend payouts. From an investor’s perspective, this conservative payout ratio may be viewed positively as it implies financial stability and the potential for capital appreciation through retained earnings and reinvestment. However, income-focused investors might see this as less attractive due to the minimal dividend yields. Overall, given the average payout ratio remains well below 65%, this trend is favorable for the company's long-term financial health while being a mixed bag for different types of investors.

Dividends Well Covered by Earnings?

The criterion evaluates whether the company's earnings are sufficient to cover its dividend payments. A good coverage ratio implies financial stability and dividend sustainability.

Analyzing Teradyne's data, we observe that its Earnings Per Share (EPS) has shown significant variation over the years, including negative values in certain years (e.g., -$1.03 in 2003, -$2.33 in 2008). It only started paying dividends from 2014. Since then, EPS has generally covered dividends per share, but not very strongly, as reflected in coverage ratios like 0.153 in 2018 and 0.097 in 2022. Strong earnings coverage of dividends is seen as a sign of financial strength and sustainability. The trend suggests some improvement but also highlights potential volatility. While the improvement in EPS in recent years (e.g., $6.15 in 2021) helps cover dividends better, the coverage ratio is still comparatively low, indicating room for improvement.

Dividends Well Covered by Cash Flow?

Explain the criterion for Teradyne (TER) and why it is important to consider

Dividends well covered by cash flow is a criterion that assesses the sustainability of a company's dividend payments. It compares the dividend payout amount to the company's free cash flow. For a dividend to be considered well covered, the payout ratio, which is calculated as dividend paid over free cash flow, should be significantly less than 1. This indicates that the company generates enough cash flow to comfortably pay its dividends without jeopardizing its financial health.

Stable Dividends Since the Company Began Paying Dividends?

Explain the importance of stable dividends, focusing on income-seeking investors' goals over the past two decades.

Teradyne (TER) initiated its dividend payments in 2014 with $0.18 per share. Since then, the company has steadily increased its dividends to $0.44 in recent years. Examining the data, there has not been a drop of more than 20%. This consistent upward trend in dividends provides income-seeking investors with a reliable income stream, which is particularly appealing in uncertain economic climates. Stability and growth in dividends imply sound financial health and effective management, making Teradyne a more attractive investment for income-focused portfolios.

Dividends Paid for Over 25 Years?

Explain Criterion 6 for Teradyne (TER) and why it is important to consider

Analyzing whether Teradyne has paid dividends for over 25 years is vital as it demonstrates the company's commitment to returning value to shareholders and its financial stability. A company with a long history of dividend payments is often viewed as a reliable investment.

Reliable Stock Repurchases Over the Past 20 Years?

reliable stock repurchases over the past 20 years

Toy stock analysis reveals that Teradyne has managed their share repurchasing strategy with relative consistency. Data highlights significant repurchase volumes in years like 2005, 2007, 2008, 2014 through 2023, signaling a strong intent to return capital to shareholders. This has resulted in an average repurchase amount of -0.6807 over 20 years, suggesting effective utilization of excess capital and solid management regard for shareholder value. Such trends often reflect company confidence in future earnings; fresh investors might see this as a favorable time to invest. Current and long-term shareholders should feel reassured by this continuous buyback activity, as it typically promotes upward share price momentum.