Last update on 2024-06-27

Trane Technologies (TT) - Dividend Analysis (Final Score: 6/8)

In-depth analysis of Trane Technologies (TT)'s dividend performance, reliability, and growth over 20 years, using an 8-criteria scoring system. Final Score: 6/8.

Short Analysis - Dividend Score: 6

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

Trane Technologies (TT) scored a 6 out of 8 in our dividend analysis based on eight criteria. Firstly, the dividend yield of 1.23% is lower than the industry average of 1.57%, making it less appealing for income investors. However, TT shows impressive dividend growth, with an average annual growth rate of 16.11%, exceeding the 5% benchmark. The payout ratio is kept at a sustainable level, averaging 22.2% over the last 20 years, indicating disciplined financial management. The dividends are covered reasonably well by both earnings and cash flow, although not always ideally. TT has been consistently paying dividends for 25 years, showcasing its stability and reliability. It also engages in regular stock repurchases, demonstrating sound financial health and commitment to shareholder value.

Insights for Value Investors Seeking Stable Income

Considering the analysis, TT is a strong candidate for dividend growth investors due to its commitment to increasing dividends, low payout ratio, and expansive history of dividend payments and stock repurchases. Nevertheless, the moderately low current dividend yield might make it less attractive for those seeking high immediate income. Potential investors should also monitor TT's earnings stability to ensure continued dividend sustainability. Overall, TT seems worth considering for long-term, growth-focused dividend investment portfolios.

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 the ratio of a company's annual dividend compared to its share price. It’s a key indicator of the returns an investor might receive from dividends.

Trane Technologies (TT) has a current dividend yield of 1.23%, which is lower than the industry average of 1.57%. This indicates that TT is less attractive for income-focused investors compared to its peers. Over the last 20 years, TT's dividend yield has shown significant volatility, peaking in 2008 at 4.15% and experiencing a low in 2010 at 0.5947%. This fluctuation can be attributed to changes in both the stock price and dividend payments. The company's share price has surged considerably in recent years, from $21.03 in 2003 to $243.9 in 2023, which has dampened the dividend yield despite rising dividend payments. TT's dividend per share has increased consistently, from $0.2231 in 2003 to $3 in 2023, showing a commitment to returning value to shareholders. However, the recent yield of 1.23% is lower, suggesting that the stock's price appreciation has outpaced dividend growth, leading to a less competitive yield in the industry. Overall, while TT demonstrates strong dividend growth, the yield is currently less appealing compared to industry standards.

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

The Dividend Growth Rate criterion measures whether Trane Technologies has been able to increase its dividends by more than 5% annually over the past 20 years, showcasing its reliability and shareholder value.

The provided dividend ratio data for Trane Technologies (TT) shows significant volatility in the dividends per share ratio over the past 20 years. For example, TT experienced substantial growth from 2003 to 2005, with the ratio increasing from 5.8% to 29.5%. However, there were several negative growth years, such as 2009, which observed a decline of 30.5%. Nevertheless, years like 2011 reflected immense growth of 53.5%. Additionally, the average dividend ratio of 16.11% far surpasses the 5% benchmark. Moreover, the overall positive average growth rate indicates a trend generally favorable for investors who rely on dividends for income. While the volatility highlights the company's responsiveness to varying economic conditions, the long-term trend shows good potential for reliable income generation. This makes TT a potentially solid choice for dividend growth investors.

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

The average payout ratio indicates how much of a company’s earnings are being paid out as dividends to shareholders, ideally below 65% for sustainability.

Trane Technologies (TT) has an average payout ratio of 22.2% over the past 20 years. This is significantly below the 65% threshold, indicating that the company retains a substantial portion of its earnings for reinvestment or as a buffer against economic downturns. Furthermore, this below-threshold ratio suggests disciplined financial management and indicates room for future dividend increases. The relatively low payout ratios also enhance the sustainability and liquidity of the company, mitigating risks associated with high dividend obligations.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings.

To assess whether dividends are well covered by earnings for Trane Technologies (TT), we need the EPS (Earnings per Share) to be consistently higher than the DPS (Dividend per Share). In financial analysis, a general rule is to have an EPS cover of at least 2x the DPS for it to be considered adequately covered. Higher earnings relative to dividends indicate sustainability and potential for dividend growth. For Trane Technologies, the earnings per share have fluctuated significantly over the years. From a high of $13.43 in 2007 to a significant low of -$8.64 in 2008, these fluctuations suggest a period of instability. In recent years, the EPS has been more consistent, landing at $8.85 in 2023. When comparing this to the dividends per share, it is observed that earlier dividend payouts had a very low cover by earnings, notable from 0.033 in 2007, which sharply increased to a negative cover in 2008 due to negative earnings. However, trending forward, we see a more favorable coverage ratio— peaking at 0.592 in 2020 and leveling around 0.338 by 2023. This trend suggests that despite past instability, recent years have shown an improved but still not ideal coverage from earnings. The current trend of improving EPS allows reasonable dividend payout increases, but attention needs to bear in further analyzing sustainability based on future earnings stability.

Dividends Well Covered by Cash Flow?

Dividends Well Covered by Cash Flow

The metric of Free Cash Flow coverage for dividends is a crucial criterion for evaluating the sustainability of a company's dividend strategy. Free Cash Flow (FCF) refers to the cash that a company is able to generate after laying out the money required to maintain or expand its asset base. This cash flow can then be used for dividends, share repurchases, or debt repayment. Evaluating how well dividends are covered by FCF ensures that the company is not over-leveraging itself to meet dividend obligations. Coverage ratio above 1 indicates enough cash flow to cover dividend payments, which represents financial health and sustainability.

Stable Dividends Since the Company Began Paying Dividends?

Explain the criterion for Trane Technologies (TT) and why it is important to consider

Stable dividends over the past 20 years suggest a robust and reliable company that income-seeking investors can rely on. Sudden drops in dividends can be alarming for investors who depend on regular income. Stability is, therefore, crucial for retaining investor confidence.

Dividends Paid for Over 25 Years?

Continuously paying dividends for over 25 years signals stability and reliability, showcasing a company's financial resilience and commitment to returning value to shareholders.

Trane Technologies (TT) has a consistent history of paying dividends from 1998 to 2023, spanning a notable 25-year period. Starting from a dividend per share of $0.1859 in 1998, there is a noticeable upward trend, with the dividend reaching $3 per share in 2023. This nearly 16-fold increase in dividends over a quarter-century is a strong indicator of the company's financial health and stability. Consistent and increasing dividend payments reflect a firm commitment to returning capital to shareholders. This trend is very favorable for long-term investors seeking reliable income.

Reliable Stock Repurchases Over the Past 20 Years?

Explain the criterion for Trane Technologies (TT) and why it is important to consider

Stock repurchases, commonly referred to as buybacks, involve a company buying back its own shares from the marketplace. This action reduces the number of shares outstanding, potentially increasing the earnings per share (EPS) and the stock price. For Trane Technologies (TT), reliable stock repurchases over the past 20 years indicate strong financial health and the confidence of management in the company's future prospects. By reducing the number of outstanding shares, TT aims to return value to its shareholders. Regular buybacks also underscore a company’s commitment to improving shareholder value and can serve as an indicator of surplus cash flow, improving overall investor sentiment and demonstrating efficient capital allocation.