Last update on 2024-06-27

UDR (UDR) - Dividend Analysis (Final Score: 3/8)

Analyze UDR (UDR)'s dividend performance and stability. Final score: 3/8. Review based on an 8-criteria scoring system.

Short Analysis - Dividend Score: 3

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

The analysis scored UDR 3 out of 8 based on its dividend policy performance and stability. UDR's dividend yield has often been higher than the industry average at 4.2831%, appealing to income-focused investors despite significant fluctuations. While UDR's average annual dividend growth rate exceeds 5%, its high volatility signals underlying issues. A worrying sign is UDR's consistently high payout ratio (216.03%) over the ideal 65%, raising sustainability concerns. Though recent years show better earnings coverage, past dividend coverage by earnings and cash flow was lackluster. Post-2010 improvements in free cash flow coverage bode well. The company has paid dividends for over 25 years but saw a sharp drop during the financial crisis. Share repurchases are rare, highlighting shareholder concerns. Overall, UDR shows potential but has drawbacks, particularly in payout sustainability and high volatility.

Insights for Value Investors Seeking Stable Income

Given the mixed performance in key dividend criteria, potential investors should approach UDR with caution. The consistent dividends for 25 years and recent positive trends in cash flow are promising. However, the high payout ratio and historic earnings inconsistencies may outweigh its attractive dividend yield. This stock could be a fit for income-focused investors who can stomach some risk, but those seeking stability might look elsewhere. Thorough due diligence is advised before investing.

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?

The dividend yield measures the ratio of a company's annual dividend payout to its share price. A higher-than-industry-average dividend yield can be indicative of good returns for investors.

UDR's current dividend yield of 4.2831% is notably higher than the industry average of 3.56%. Over the last 20 years, UDR's dividend yield has fluctuated significantly, peaking at an extraordinary 18.9268% in 2008, during the global financial crisis, and reaching its lowest point of 2.4146% in 2021. Relative to the industry, UDR has often maintained a competitive yield. This trend is particularly beneficial for income-focused investors who prioritize dividends. However, the fluctuations might indicate underlying stock price volatility, as evidenced by the stock price changes over the years. For instance, the stock price in 2008 was $13.79 when the yield was highest. By 2023, UDR's yield surpasses the industry average, indicating a potentially high return on investment for dividend seekers, especially given the more stable and increasing dividend payouts per share, rising from $1.133 in 2003 to $1.64 in 2023.

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

Evaluate whether UDR's dividend growth rate exceeded 5% per annum over the past 20 years and explain the significance of this metric.

The provided data indicates the yearly dividend per share ratio for UDR over the past 20 years, showing varying degrees of dividend growth and cuts. By calculating the annual incremental growth rates and averaging them, we can determine UDR’s average dividend growth rate. Considering the average dividend ratio over these years is 7.124%, this exceeds the 5% threshold. However, some years witnessed negative growth, such as -74.52% in 2009, and pronounced fluctuations in the ratio show volatility in UDR’s dividend payments. Thus, despite surpassing the 5% threshold on average, the inconsistent year-to-year dividend growth rate indicates an underlying volatility that needs further scrutiny.

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

Assessing the average payout ratio in the past 20 years helps in understanding a company's dividend sustainability and its ability to distribute profits back to its shareholders.

From 2003 to 2023, UDR's average payout ratio stands at 216.03%, significantly exceeding the ideal threshold of 65%. Notably, several years, such as 2011 and 2021, even reported payout ratios inflating above 500%. While occasionally higher payout ratios might be tolerable due to extraordinary circumstances, consistently high ratios reflect instability in the company's earnings. A consistent payout ratio above 65% raises questions about the company's ability to generate sufficient profits and could indicate potential risk in continuing with its current dividend levels. This trend is evidently bad as it undermines confidence in dividend reliability and hints at underlying financial volatility.

Dividends Well Covered by Earnings?

Dividends being covered by earnings is crucial as it indicates the company's ability to sustain dividend payments from its net income. Consistency in covering dividends by earnings often signifies stable cash flow and financial health.

Analyzing UDR's EPS and dividends per share from 2003 to 2023, we see that there were several periods where earnings per share did not cover dividends, notably in 2007, 2008, 2009, and 2010. However, strong coverage in the years such as 2005, 2011, and 2021 indicates resilience. The most recent year, 2023, shows a relatively stable coverage with a ratio of 1.213, which is an optimistic sign for dividend sustainability. Periodic negative coverage may raise concerns about volatility.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow indicate a company's ability to sustainably pay dividends from its operational inflows. This is crucial for yield stability.

Between 2003 and 2010, UDR (UDR) struggled with free cash flow, often showing negative figures, indicating operational inefficiencies or significant reinvestments back into the business. Coverages for these years, such as -1.049 (2003) and -0.014 (2010), signify that dividends were not adequately supported by cash flows but likely relied on external financing. A notable shift occurs from 2011 onwards, with positive free cash flow prevailing. Coverage ratios exceeding 0.7 after 2012 reflect enhanced fiscal health, peaking at 1.30 (2012) and recently touching 1.05 (2023). This positive trend showcases UDR's improved operational efficiency and cash-generating capabilities, ensuring dividends are sustainably and stably covered. Considering recent performance, this trend is favorable for investor confidence and long-term yield stability.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends are crucial for income-seeking investors because they provide a level of predictability and reliability in income streams. A reduction of more than 20% in dividends over the past 20 years would indicate an inconsistency that could be problematic for long-term financial planning.

The given data for UDR (UDR) shows dividends per share for the past 20 years, from 2003 to 2023. Over the years, UDR's dividends per share have fluctuated, particularly in 2009, where a sharp drop to $0.665 is noted, which was a significant reduction from $2.61 in the previous year, 2008. This sharp decline of over 75% is a red flag. However, apart from this dramatic drop during the 2008 financial crisis, the data shows a generally stable and steadily increasing trend in dividends since 2010. This suggests the company has put mechanisms in place to stabilize its dividend payout following the financial turbulence. If we disregard the anomaly of 2008-2009 for argument's sake, the consistency in subsequent years is promising. The trend from 2010 onward could be seen as a reflection of maturity and financial rectitude in dividend policy. Nevertheless, investors must be wary that the past does strongly impact future expectations, and the 2008-2009 drop indicates potential vulnerabilities in extreme market conditions.

Dividends Paid for Over 25 Years?

The ability of a company to consistently pay dividends over a long period, such as over 25 years, demonstrates financial stability and a commitment to returning value to shareholders. Long-term dividend payments are often a sign of a mature and profitable company.

From the data provided, UDR (UDR) has paid dividends consistently from 1998 through 2023, showing a remarkable 25-year track record of dividend payments. The dividend per share (DPS) has shown resilience and growth over this period, rising from $1.038 in 1998 to $1.64 in 2023. This indicates a reliable and stable trend in their financial performance and commitment to shareholder return. Despite a substantial drop in dividend per share in 2009 to $0.665 due to the financial crisis, UDR managed to recover and continued increasing dividends in subsequent years. This trend is overall positive, suggesting UDR has a robust dividend policy and financial resilience to maintain and grow shareholder returns even in challenging economic conditions.

Reliable Stock Repurchases Over the Past 20 Years?

This criterion assesses whether a company consistently repurchases its shares, which can signal strong financial health and management's confidence in the company's future.

Over the past 20 years, UDR has not consistently repurchased its shares. The data reveals only one reliable year (2006) where share repurchases occurred. Additionally, the overall trend shows an increase in the number of shares from 115.648 million in 2003 to 328.765 million in 2023. This upward trajectory indicates UDR has been issuing more shares rather than repurchasing them. An average repurchase of 5.5227% over 20 years is quite low, further suggesting that share buybacks have not been a focus for the company. This trend could be viewed negatively by investors who prefer regular buybacks as a method for shareholder value enhancement.