Last update on 2024-06-27

Thermo Fisher Scientific (TMO) - Dividend Analysis (Final Score: 4/8)

Analyze Thermo Fisher Scientific's dividend policy: see how TMO scores 4/8 based on 8 benchmarks. Discover its dividend yield, growth rate, payout ratio, and more.

Short Analysis - Dividend Score: 4

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

The analysis of Thermo Fisher Scientific (TMO) using the 8-criteria scoring system reveals a mixed picture for dividend investors. The dividend yield is significantly lower than the industry average, indicating that TMO is more focused on reinvesting its earnings rather than paying them out as dividends. The dividend growth rate hasn't consistently exceeded 5% and shows inconsistency, indicating unstable returns for income-focused investors. However, TMO's payout ratio is impressively low, suggesting strong financial health and a conservative approach designed to support future growth. Dividends are well covered by both earnings and cash flow, pointing to sustainability in payments. While the company has shown a commitment to stable and increasing dividend payments over the last decade, it lacks the long-term history of paying dividends over the past 25 years, which might be concerning for some investors. Lastly, reliable stock repurchases further reinforce TMO's shareholder-friendly policies.

Insights for Value Investors Seeking Stable Income

Based on the analysis, Thermo Fisher Scientific (TMO) appears to be a solid choice for investors prioritizing long-term growth and financial stability over immediate dividend income. If your primary focus is receiving high and consistent dividends, TMO may not be the best choice, given its lower yield and inconsistency in historical dividend payments. However, for those interested in a company with a conservative and sustainable approach to both growth and dividends, along with a commitment to returning value through stock repurchases, TMO could be worth considering.

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 helps investors understand the return on investment they can expect from dividends alone.

Thermo Fisher Scientific's (TMO) dividend yield for 2023 is 0.2638%, which is significantly lower than the industry average of 0.39%. Over the last 20 years, TMO's dividend yields have generally been on a declining trend, from 0.8467% in 2012 to 0.2638% in 2023. Despite a few minor fluctuations, the overall pattern has been a diminution, reflecting a strategie where more capital might be reinvested into growth opportunities rather than distributed as dividends. Although this could signal to investors that the company is focusing on long-term growth, the lower yield doesn't favour income-focused investors. In contrast, the industry average has shown more stability and relative consistency around its median values, highlighting potential better short-term returns for dividend-seeking investors. Generally, TMO's lower yield indicates a company-specific strategy leaning towards reinvestment and growth rather than immediate income distribution. Therefore, while the trend could be positive from a growth perspective, it is less appealing purely in terms of dividend yield.

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

Dividend Growth Rate

The provided data shows dividend per share values for Thermo Fisher Scientific over the years 2003 to 2023. Starting in 2013, TMO has paid dividends inconsistently, with apparent gaps in payments from 2013 to 2023. The dividend per share ratio didn't exceed 5% in most years, except for specific periods like 2016. It's 4.87% on average. This reflects inconsistency in the dividend growth rate, signaling unstable returns for investors reliant on dividends. Overall, TMO's growth rate fails to consistently meet the crucial benchmark of 5%, showcasing instability in dividend policy.

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

The payout ratio reflects the proportion of earnings paid out as dividends to shareholders. A lower payout ratio allows a company to retain more earnings for reinvestment and potentially indicates financial stability.

Over the past 20 years, Thermo Fisher Scientific (TMO) has maintained an average payout ratio of approximately 5.99%, which is significantly below the 65% threshold. This suggests that the company has consistently retained a large portion of its earnings for reinvestment and growth, which is generally a positive indicator of financial health. The downward trend in recent years, with values like 5.30% and 6.77%, further emphasizes this conservative approach towards dividend payments, suggesting strong long-term financial stability and a focus on growth over shareholder payouts.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings.

Thermo Fisher Scientific (TMO) shows a solid trend where the dividends per share are well covered by the earnings per share. From no dividends until 2009 to the latest dividend coverage ratio in 2023, which stands at 9%, the coverage ratios over the years indicate a steady increase in payouts while maintaining a sustainable approach. An earnings coverage ratio of under 100% suggests that TMO is prudent, utilizing its retained earnings for growth and stability, a positive indicator for sustaining future dividends and reinforcing investor confidence.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow mean that the company generates more free cash flow than the dividends it pays out. This ensures that the company can sustain its dividend payments without financial strain.

Thermo Fisher Scientific (TMO) has exhibited a stable and improving trend in Free Cash Flow (FCF) from 2003 to 2023, with a notable increase from $170.6M in 2003 to $6.93B in 2023. The company's Dividend Payout Amount has also gradually increased from 2012 to 2023, peaking at $523M in 2023. The Dividend Coverage Ratio (DCR), representing the percentage of FCF allocated to dividends, showed that dividend payments have been consistently well-covered by FCF. The ratio peaked at about 12.51% in 2013 but has generally maintained a conservative range, indicating a robust cushion between FCF and dividends. This indicates a prudent dividend policy and a strong ability to cover payouts with operational cash flow. Thus, this is a favorable trend, exhibiting financial prudence and sustainability.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments is essential for investors, as it provides a predictable income stream and signals company health.

Over the past 20 years, Thermo Fisher Scientific (TMO) has shown a steady increase in its dividend per share, particularly from the year 2012 onwards. Starting with a dividend of $0.54 in 2012, the company has consistently raised its dividends each subsequent year, reaching $1.4 in 2023. This indicates a strong commitment to returning value to its shareholders. There is no record of a drop exceeding 20% at any point during this period, suggesting robust financial health and a shareholder-friendly policy. For income-seeking investors, this trend is very favorable as it underscores the reliability and stability of the income stream from TMO.

Dividends Paid for Over 25 Years?

Examining whether dividends have been consistently paid over at least 25 years helps assess the company's long-term commitment to shareholder returns and financial stability.

The data provided for Thermo Fisher Scientific (TMO) shows that dividends were not paid out consistently over the past 25 years. Starting from 1998, there is a noticeable absence of dividends for a substantial period until 2001, followed by another gap from 2002 to 2013. Consistent annual dividends resume only from 2014 onward up to 2023. Although the recent trend shows a gradual increase in dividends per share from 0.54 in 2012 to 1.4 in 2023, the lack of consistent dividends in earlier years is concerning for this criterion. This indicates that TMO might not have prioritized regular dividend payments historically, which could be viewed negatively by income-focused investors. However, the increasing trend over the last decade could imply a newfound or renewed commitment to shareholder returns, thereby partially mitigating past inconsistencies.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases refer to a company's consistent buyback of its shares over time.

Over the last 20 years, Thermo Fisher Scientific (TMO) has actively engaged in stock repurchases in numerous years: specifically, 13 out of the 20 years analyzed saw reliable share buybacks. The consistent reduction in shares, except during periods of acquisition or other strategic decisions, underscores the firm’s commitment to returning value to its shareholders. The average share repurchase of 6.243 million shares per year further supports this trend. This indicates a robust and shareholder-friendly capital allocation strategy, which is generally favorable as it can increase earnings per share and signal management's confidence in the company's future prospects.