Last update on 2024-06-27

Tyson Foods (TSN) - Dividend Analysis (Final Score: 6/8)

Tyson Foods (TSN) Dividend Analysis: Evaluating stability and performance through an 8-criteria scoring system. Final Score: 6/8.

Short Analysis - Dividend Score: 6

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

The analysis looks at Tyson Foods' (TSN) dividend policy through an 8-criteria scoring system, where TSN scores 6 out of 8. TSN's current dividend yield is 3.59%, lower than the industry average of 4.37%, but it has grown consistently since 2003. The company has maintained over a 5% average annual dividend growth rate, indicating financial health. TSN's payout ratio has also been considerably lower than the 65% threshold, being at around 10.67%, reflecting a conservative dividend distribution. However, the company's EPS has shown volatility, with some years dipping into negative territory, raising concerns about dividend coverage. The dividends' coverage by cash flow also fluctuates, with recent years showing negative free cash flow. Despite this, TSN has provided stable and increasingly high dividends since 2012, and maintained a dividend payout for over 25 years, emphasizing consistency and commitment. The presence of stock repurchases over the last 20 years further indicates effort in returning shareholder value.

Insights for Value Investors Seeking Stable Income

Given Tyson Foods' long dividend-paying history and efforts to return value through dividends and stock repurchases, the stock appears potentially favorable for investors seeking income. However, cautious analysis of its recent EPS volatility and negative free cash flow in some years is advised. If stable and increasing dividends with potential for capital appreciation appeal to you, Tyson Foods could be worth a closer look, especially if you diversify across various stocks.

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

The dividend yield of Tyson Foods (TSN) currently stands at 3.5907%, which is lower than the industry average of 4.37%. Examining the trend, TSN's dividend yield has sustainably increased from 1.2085% in 2003. A noteworthy escalation is evident as the company's yield surged from sub-1% levels in the early 2010s to its present level, reflecting consistent enhancement in shareholder returns and possibly indicating the company’s robust financial health. However, despite this progression, the current figure still lags behind industry norms, which could determine potential competitiveness issues concerning attracting income-focused investors. Moreover, the industry average figures have fluctuated over the last two decades, with recent spikes likely attributed to external market conditions. Still, the comparably faster increment in TSN’s dividends suggests focused growth. This trend is fairly positive as it signals an increasing ability to distribute earnings as dividends over time, but the underperformance relative to peers reflects limitations in matching prevalent industry standards for high-yield investments.

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

Explain the criterion for Tyson Foods (TSN) and why it is important to consider

The criterion of having a dividend growth rate higher than 5% over the last 20 years is pivotal for investors seeking stable and increasing income from their investments. A consistent and growing dividend payout is often viewed as a sign of a company's financial health and commitment to returning value to its shareholders. It also speaks to the company's cash flow stability and management's confidence in long-term profitability.

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

The average payout ratio is a crucial metric that shows the portion of net income distributed to shareholders in the form of dividends. It helps gauge the sustainability of a company's dividend policy.

Tyson Foods (TSN) has an average payout ratio of around 10.67% over the last 20 years. This is significantly lower than the 65% threshold, indicating a conservative approach to dividend distribution. Such a low payout ratio often implies that the company retains most of its earnings for reinvestment or other corporate needs, which could be beneficial for long-term growth prospects. While some negative values are noted, likely due to losses incurred, the overall trend is very conservative. This low payout ratio is generally a good sign, showcasing the company's capability to consistently pay dividends without overextending its financial resources.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings. This criterion assesses how comfortably a company can cover its dividend payouts with its earnings. The payout ratio (dividends per share divided by earnings per share) is a key indicator here. A lower ratio suggests that the company has ample earnings to support its dividend payments, thereby reducing the risk of a dividend cut.

Upon analysis of Tyson Foods (TSN) historical data, several key observations become evident regarding the coverage of dividends by earnings: The Earnings Per Share (EPS) from 2003 to 2023 shows considerable volatility, with some notable years such as 2006, 2009, 2023 where EPS plunged into negative territory. This is particularly concerning as negative EPS periods mean that the company did not generate any positive earnings to cover dividends, evidenced by the negative payout ratio in those years (-0.2816 in 2006, -0.1108 in 2009, -1.0543 in 2023). In most years, however, EPS remained positive, and Tyson showed a generally upward trend in EPS, especially from 2014 until 2021, reflecting operational improvements or favorable market conditions. Despite fluctuations in EPS, Tyson has steadily increased its dividends per share over the years. From a modest $0.16 from 2003 to 2010 to $1.93 in 2023. Although upward dividend trends are typically positive signals for investors, they are appealing if well covered by earnings. Unfortunately, the coverage ratio has rarely demonstrated strong levels based on this historical data. Notably, the coverage ratio exceeded 0.3 only in recent years like 2019 and 2020 (0.3447 and 0.3003 respectively). Even the best coverage year (2019) has not crossed 1, meaning earnings barely exceed dividends paid. Between 2010 to 2022, the average coverage ratios hovered approximately around 0.17-0.25, suggesting relatively tight EPS to dividend payment margins. In conclusion, the trend demonstrates the aggressive dividend increase policy by Tyson Foods despite inconsistencies in the coverage by earnings. This can pose risks to dividend sustainability, particularly highlighted in years of negative EPS. Therefore, investors may exercise caution considering the less robust coverage in light of consistent dividend expansion. While dividend income is a key attraction, dividend safety rooted in strong earnings coverage should remain a pivotal consideration.

Dividends Well Covered by Cash Flow?

A company's dividends are considered well-covered by its cash flow if the free cash flow generated by the business sufficiently covers the dividend payments. This ensures that the company can sustain or even grow its dividends without relying on external financing or depleting its cash reserves. Consistently covering dividends with free cash flow is a key indicator of financial health and dividend safety.

Tyson Foods experienced significant variability in its free cash flow from 2003 to 2023, with several years of negative free cash flow (2003, 2006, 2008, 2023) causing earnings-to-dividend coverage ratios to drop to negative values or zero (most notably in 2006, 2008, and 2023). Positive coverage ratios above 1 indicate that the company had enough cash flow to cover its dividends; however, this was not consistent throughout the years. Despite several strong years (2015 to 2017, 2021), the recent trend showing a drastic negative free cash flow in 2023 (-3.5828) raises concerns over the sustainability of its dividend payouts. Such inconsistencies might suggest a risky investment if this trend continues.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments over the past 20 years is of utmost importance for investors who seek reliable income. Sudden significant drops in dividends can signal financial instability or strategic shifts that might disadvantage income-seeking investors. Therefore, it's crucial to assess if Tyson Foods has maintained stable or growing dividend payments without any major reductions exceeding 20% year-over-year in the last two decades.

Analyzing the dividend per share (DPS) for Tyson Foods over the last 20 years, we see the following progression: from 2003 to 2011, the DPS remained at or below 0.16, exemplifying stability during that period. Notably, there's a sharp increase starting in 2012 when the DPS jumps to 0.27 and continues to generally ascend in subsequent years. This overall pattern of gradual increase in dividends is favorable for income-seeking investors. However, it's indicated that there was at least one year within this timeframe where the dividend dropped by more than 20%. Such a drop could potentially concern some investors as it might reflect underlying financial issues or strategic decisions that could impact consistent income flow. Identifying the specific year of the dividend cut and understanding the reasons behind it are essential for a comprehensive evaluation.

Dividends Paid for Over 25 Years?

Explain the criterion for Tyson Foods (TSN) and why it is important to consider

Tyson has been consistently paying dividends for over a quarter of a century— from 1998 to 2023. This continuity showcases the company's commitment to returning value to shareholders. Although the dividends appeared flat from 2000 to 2012, at about $0.16 per share, they have increased substantially in the last decade. This upward trend signifies a growing confidence by the management in the company's profitability and cash flows. For example, the dividend per share increased from $0.16 in 2013 to $1.93 in 2023, marking a more than 1100% rise in a decade. This trend is definitely positive, indicating financial health and robust business performance. Hence, investors can have more confidence in receiving a steady income source from their investment in Tyson Foods.

Reliable Stock Repurchases Over the Past 20 Years?

Assessing a company's history of stock repurchases provides insight into how the company is returning value to its shareholders and managing its earnings per share.

Over the past 20 years, Tyson Foods (TSN) has shown some level of commitment to stock repurchases, especially in nine specific years: 2006, 2012, 2014, 2016, 2017, 2018, 2019, 2022, and 2023. The average repurchase rate stands at around 0.1033, which suggests a somewhat cautious but steady approach to buybacks. Notably, there were substantial reductions in shares outstanding in years such as 2016 and 2017, indicating a stronger commitment during these periods. This trend is positive as it reflects the company's efforts to enhance shareholder value by returning excess capital and improving earnings per share over time.