Last update on 2024-06-27

Textron (TXT) - Dividend Analysis (Final Score: 5/8)

Analyze Textron's (TXT) dividend performance using an 8-criteria scoring system, scoring 5/8, to determine stability and future prospects for shareholders.

Short Analysis - Dividend Score: 5

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

The dividend analysis evaluates Textron (TXT) on an 8-criteria system to assess its performance and stability. Textron scored 5 out of 8. The company's dividend yield is significantly lower than the industry average and its dividend growth rate is inconsistent. While it maintains a low payout ratio, indicating financial prudence, its dividend coverage by earnings and free cash flow has been unreliable. Textron's dividends have not been stable since 2009, and although it has paid dividends for over 25 years, the amounts have fluctuated. The company has reliably repurchased stock, showing a commitment to shareholder value.

Insights for Value Investors Seeking Stable Income

Textron (TXT) shows strong financial management in some areas, such as maintaining a low payout ratio and regularly repurchasing stock. However, it has substantial issues with providing consistent and growing dividends, making it less attractive for income-focused investors. If you're looking for steady dividend income, Textron may not be the best choice. However, if you're interested in potential long-term value through stock repurchases and low payout ratio, it might 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?

A company's dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its share price. It is a key metric for investors looking for steady income, particularly in relation to industry averages.

Textron (TXT) currently has a dividend yield of 0.0995%, which is significantly lower than the industry average of 1.16%. Historically, Textron's dividend yield has seen considerable fluctuations, notably reaching a peak of 6.633% in 2008 during the financial crisis and then declining steeply to below 1% in subsequent years. Additionally, Textron’s stock price has shown significant volatility in the last 20 years, as evidenced by hitting lows around $13.87 in 2008 and rising back up to $80.42 in 2023. Despite historical highs, the company's recent dividend offerings have been minimal, consistently at $0.08 per share since 2009, except for a slight uptick to $0.1 in 2018. This trend suggests a strategic shift of the company towards reinvesting earnings back into the business or other operational activities rather than distributing profits to shareholders. This is not necessarily a bad thing if reinvestments lead to higher growth, but it might be considered unattractive for income-focused investors.

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

The Dividend Growth Rate is a measure of the annualized percentage rate of growth of a company's dividend. This is important as it shows how the company has increased its dividends over a period, indicating financial health and commitment to returning value to shareholders.

For Textron (TXT), the Dividend Ratio history reveals a highly irregular and inconsistent pattern. With dividend per share ratios fluctuating drastically, including negative values and several years with no dividends at all, the company does not showcase a stable trend. Notably, in years like 2009, 2018, and 2019, the negative ratios (like -91.3043 in 2009 and -20 in 2019) distort the overall average, which stands at -2.3854. Such inconsistency fails to meet the 5% annual growth criterion, presenting a poor outlook for dividend-focused investors. The trend is clearly unfavorable, underscoring a lack of reliable and consistent dividend growth over the last two decades.

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

Average Payout Ratio, a crucial financial metric, measures the percentage of earnings distributed as dividends to shareholders. Maintaining this ratio below 65% ensures financial flexibility for reinvestment, debt repayment, or reserves for future uncertainties.

Textron (TXT) has demonstrated a commendably low average Payout Ratio of 15.555% over the last 20 years, significantly below the 65% threshold. This suggests the company prioritizes maintaining robust retained earnings, possibly opting to reinvest in business operations or hold reserves for potential downturns. Notably, after 2009's negative payout due to losses, the company stabilized its ratios, often remaining below 10%. This trend reflects prudent financial management and a conservative dividend policy, supporting long-term sustainability. Reducing high payouts amplifies Textron's ability to navigate economic challenges and invest selectively in growth opportunities. Thus, maintaining this trend bodes well for shareholders seeking steady, long-term returns.

Dividends Well Covered by Earnings?

Dividends should be well covered by earnings to ensure that the company can sustain or grow its dividend payouts without compromising its financial health. Ideally, the dividend payout ratio (dividends per share divided by earnings per share) should be less than 1, indicating that the company earns enough to cover its dividend.

For Textron (TXT), the dividend coverage ratios over the years have varied significantly. The highest coverage ratio was observed in 2005 at 0.94, meaning earnings were nearly sufficient to cover dividends. However, negative coverage in 2009 indicated that the company's earnings were not sufficient to cover dividends at all. The recent years (2019-2023) show alarmingly low coverage ratios, with 2023 at 0.0175054704595186, suggesting that earnings barely cover dividends, highlighting a concerning trend of unsustainable dividend payouts. This dwindling ratio points towards potential financial difficulties in maintaining current dividend levels in the future.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow indicate a company's financial health and sustainability. It means the firm generates sufficient free cash flow to cover its dividend payments, reducing the risk of dividend cuts.

Textron has experienced a dramatic fluctuation in its ability to cover dividends with free cash flow. In 2003, the coverage ratio was 0.41, suggesting decent health. However, by 2008, this ratio skyrocketed to 1.42, showing exceptional coverage. Post-2009, it plunged to negligible rates, recently stabilizing around 0.02 by 2023. The sustained low ratios post-2009 are concerning, indicating potential financial strain or other priorities for cash flow usage. Despite generating substantial free cash flow, Textron's dividend payout remains consistently low. This disparity prompts scrutiny of capital allocation, though it could be a strategic move for retaining earnings for growth.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends are crucial for investors seeking dependable income because they indicate the company’s ability to consistently generate sufficient profit to return to shareholders.

Over the past 20 years, Textron's (TXT) dividend stability is highly questionable. Until 2008, the company maintained a gradually increasing dividend per share from $0.65 in 2003 to $0.92 in 2008. However, post-2008, there is a significant drop to $0.08, which has remained constant until 2023 except for a brief increase to $0.10 in 2018. The massive drop in 2009 by more than 20% dramatically affects income stability for shareholders. For income-seeking investors, this trend is unfavorable as it underpins a substantial risk in reliance on a consistent dividend yield.

Dividends Paid for Over 25 Years?

Dividends paid for over 25 years is important as it shows the company's commitment to returning value to shareholders. It also suggests financial stability and confidence in future earnings.

Textron has a mixed record when it comes to consistent dividend payments over the past 25 years. According to the data, between 1998 to 2008, Textron steadily paid dividends, gradually increasing its dividend per share from $0.8175 in 1998 to $0.92 in 2008. However, starting in 2009, there was a significant reduction in dividends to $0.08 per share, coinciding with the global financial crisis. The dividend remained at this low level for more than a decade, with a brief increase to $0.1 per share in 2018 before returning to $0.08 per share. This indicates periods of financial instability or a strategic choice to reallocate funds, both of which might concern dividend-focused investors. While the company has a history of paying dividends, the inconsistent dividend amounts paint a less favorable picture for those seeking stable and growing dividend income.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases refers to the company's consistent practice of buying back its own shares over an extended period. This action indicates management's confidence in the company's future prospects and can be beneficial to shareholders by providing value through higher earnings per share and potential stock price appreciation. It is important to analyze this criterion as it reflects on the company’s capital allocation strategy and financial health.

Textron (TXT) has generally demonstrated reliable stock repurchases over the past 20 years. Particularly noteworthy years where significant buybacks took place include 2005, 2006, 2007, 2008, 2012, and recent years from 2013 to 2023, with minor exceptions. The average repurchase rate of -1.4147% per year suggests a consistent overall reduction in shares outstanding, indicating that Textron has been proactively enhancing shareholder value. For example, from 2003 to 2023, the number of shares reduced from 274.434 million to 201.532 million, which is a substantial decrease of approximately 26.56%. This trend is positive for investors as it demonstrates the management's commitment to boosting shareholder value through stock buybacks, resulting in increased earnings per share and potentially higher stock prices.