Last update on 2024-06-27

Truist Financial (TFC) - Dividend Analysis (Final Score: 6/8)

In-depth analysis of Truist Financial (TFC) dividends with an 8-criteria scoring system, yielding a 6/8 final score. Detailed insights for dividend-focused investors.

Short Analysis - Dividend Score: 6

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

The analysis of Truist Financial's (TFC) dividends based on an 8-criteria scoring system gives the company a decent score of 6 out of 8. TFC has a higher dividend yield than the industry average, suggesting it is undervalued. Its average annual dividend growth rate slightly exceeds the 5% benchmark, though it shows significant volatility. The company maintains a low average payout ratio, indicating sustainable dividends. However, dividends are not always well covered by earnings or cash flow, implying some risk of inconsistency. TFC has paid stable and increasing dividends over the past 20 years, even during economic downturns, and has a history of over 25 years of dividend payments. While the company performs periodic stock repurchases, it lacks a strong commitment to consistent buybacks.

Insights for Value Investors Seeking Stable Income

Considering Truist Financial's decent dividend score and sustainability history, it’d be worth looking into this stock if you're an income-focused investor. The high dividend yield and over 25 years of dividend payments are very attractive. However, be cautious of the volatility in earnings and dividend coverage. It's a good option if you're willing to tolerate some level of risk for the prospect of higher returns.

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 represents the ratio of a company's annual dividend compared to its share price. It is a key metric for investors looking for regular income.

Truist Financial (TFC) boasts a dividend yield of 5.6338%, significantly higher than the industry average of 2.76%. Historically, TFC's dividend yield has fluctuated, peaking at 6.77% in 2008 during the financial crisis and hovering around lower levels during stable periods. Over the past 20 years, the stock price has shown some volatility, but the company's commitment to increasing the dividend per share, from $1.22 in 2003 to $2.08 in 2023, underscores its strength and reliability in providing returns to shareholders. Such a high yield suggests that TFC may be undervalued currently, presenting an attractive opportunity for dividend investors. However, the stock's recent closing price of $36.92 and historical trends indicate that investors should be mindful of potential underlying risks. Overall, the consistently high yield is a positive sign, albeit requiring consideration of external economic factors.

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

The Dividend Growth Rate considers the annual percentage increase in dividends paid per share. A rate higher than 5% suggests a strong commitment to returning value to shareholders, a positive sign for income-focused investors.

The dividend growth rates for Truist Financial (TFC) over the past 20 years have fluctuated significantly: from a high of 47.3684% in 2013 to negative values in years like 2008 (-33.3333%) and 2009 (-51.6129%). However, looking at the average dividend growth rate of approximately 5.276%, we note that it slightly exceeds the 5% benchmark, indicating a trend of consistent but volatility-laced growth. This trend, despite its ups and downs, can be considered positive as it highlights resilience and the ability to recover and grow dividends over time.

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

Criterion 1.2: The Average Payout Ratio benchmark below 65% over the past 20 years is crucial, as it indicates the sustainability of dividend payments. A lower payout ratio signifies that a company retains a greater portion of its earnings, which is crucial for future growth and buffers against economic downturns.

The average payout ratio of Truist Financial (TFC) over the last 20 years is calculated to be 33.48%, significantly below the 65% threshold. This suggests that the company has maintained a conservative dividend policy focused on sustainability. The highest observed payout ratio occurred in 2023, notably negative (-253.94%), indicating a year with negative earnings which skews the average. Excluding outliers like this, the company generally displays solid fiscal management regarding dividend distributions. Most years fall below the 65% target, presenting a prudent approach that's beneficial for long-term stakeholder value and resilience. However, investors should note the volatility in earnings highlighted by extreme outliers.

Dividends Well Covered by Earnings?

Dividends being well covered by earnings indicates a company's stability and its ability to sustain dividend payments. Consistent or growing earnings relative to dividends suggest potential for future dividend increases, a sign of financial health and investor confidence.

Over the past two decades, Truist Financial (TFC) has had varied success in covering its dividends with earnings. Notably, the ratio of dividends covered by earnings declined during economic disruptions, such as in 2008's financial crisis and 2020's pandemic. For example, in 2009, the cover ratio plummeted to 0.923 following a significant drop in EPS to 1.342 from 2.749 in 2008. Recent years show some volatility, with 2023 seeing a negative coverage ratio due to an EPS of -0.8191 against a DPS of 2.08. Consistent moderate coverage from 2013 to 2017 (around 0.38 to 0.42) shows more stability, but increased volatility suggests room for scrutiny. Overall, the inability to consistently cover dividends reflects poorly on the robustness of current earnings, which is concerning for sustaining future dividends.

Dividends Well Covered by Cash Flow?

Explain the criterion for Truist Financial (TFC) and why it is important to consider

Dividends Well Covered by Cash Flow refers to the ability of a company to pay dividends to its shareholders out of its free cash flow. This is a critical measure as it illustrates a company's financial health and its capability to sustain and potentially grow its dividend payments without compromising other operational needs. Consistent free cash flows relative to dividend payout highlight a company's efficient operations and strategic financial management. Investors typically look for companies with high coverage ratios, as it signals that the dividends are secure and there is potential for future growth.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends over the past two decades provide confidence to income-seeking investors that the company can consistently generate returns even during economic downturns.

Truist Financial (TFC) has experienced some fluctuations in its dividend per share over the past 20 years. Notably, a significant drop occurred in 2009 when the dividend per share fell from $1.86 in 2008 to $1.24 in 2009, as well as a more drastic reduction to $0.60 in 2010. Despite these drops, the company gradually stabilized and increased its dividend payments, reaching a dividend per share of $2.08 by 2023. While the sharp drop around 2008-2010 could be attributed to the global financial crisis, the overall 20-year trend shows a recovery and upward movement in dividends. Thus, considering the entire period, TFC demonstrates resilience but this period of instablity should be taken into account for risk assessment. Yet, there was no year with a drop exceeding 20%, as per the provided data.

Dividends Paid for Over 25 Years?

Dividends paid over a long period signify a company's stability and commitment to shareholders. It shows the company's consistent profitability and careful capital management.

Truist Financial has paid dividends consistently for over 25 years, reaffirming its commitment to returning value to shareholders. Analyzing the data from 1998 to 2023, noticeable increases in dividend per share are evident, such as the rise from $0.66 in 1998 to $2.08 in 2023. The company's ability to maintain dividend payments, even through economic downturns (e.g., a drop to $0.60 in 2010 post the financial crisis), highlights its resilience. This trend is favorable as it reflects financial robustness and consistent shareholder value creation.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable Stock Repurchases Over the Past 20 Years

The number of shares for Truist Financial over the past 20 years has fluctuated significantly. For example, the number of shares increased from 514 million in 2003 to 1.336 billion in 2022. During the same period, shares were reduced in certain years: 2005, 2006, 2017, 2018, 2021, and 2022. This indicates that the company has performed stock repurchases periodically. However, it doesn't indicate a consistently reliable trend since the shares outstanding increased in several other years. Despite an average repurchase year-over-year rate of approximately 5.67%, the overall trend doesn't show a strong commitment to regular buybacks. Therefore, from a dividend perspective, this trend is not particularly positive because fewer buybacks dilute the earnings and reduce the dividend per share.