Last update on 2024-06-27

Universal Health Services (UHS) - Dividend Analysis (Final Score: 5/8)

Universal Health Services (UHS) dividend analysis: Final Score 5/8. An in-depth evaluation of UHS's performance and stability using an 8-criteria scoring system.

Short Analysis - Dividend Score: 5

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

Based on the evaluation of Universal Health Services (UHS) using an 8-criteria scoring system, the company scored an overall dividend score of 5 out of 8. Here are the key findings: 1. **Dividend Yield**: UHS's dividend yield has often been lower than the industry average over the past 20 years, making it less attractive for income-focused investors. 2. **Dividend Growth Rate**: UHS has shown inconsistent dividend growth, with some years exhibiting significant dividends and others having negative or zero growth. This inconsistency is a concern for those looking for predictable annual increases. 3. **Payout Ratio**: UHS's average payout ratio over the last 20 years is impressively low at 6.81%, indicating strong financial management and sustainable dividend payments. 4. **Earnings Coverage**: UHS's earnings per share have consistently covered its dividend payments, suggesting good financial health. 5. **Cash Flow Coverage**: Although there have been periods of concern, overall, UHS has managed to cover its dividends with cash flow, particularly in recent years. 6. **Dividend Stability**: UHS has maintained relatively stable dividends over the past 20 years, with no drastic reductions breaching the 20% threshold. 7. **Dividend Payment History**: UHS has a relatively young dividend payment history of 21 years, which falls short of the 25-year benchmark. 8. **Stock Repurchases**: UHS has consistently repurchased shares over the past 20 years, indicating strong cash flow and a commitment to shareholder value.

Insights for Value Investors Seeking Stable Income

While Universal Health Services (UHS) shows strong financial management and a commitment to shareholder value through share repurchases, its inconsistent dividend growth and lower-than-average dividend yield make it less appealing for income-focused investors. However, the company's low payout ratio and stable dividend record are positives. If you're looking for a stock with consistent share repurchases and a focus on long-term financial health, UHS might be worth considering. But if you prioritize high and steady dividend yield, you might want to look elsewhere.

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 measures the annual dividends paid per share divided by the price per share. It gives investors an idea of how much income they might expect relative to the price they paid for the stock.

When comparing the dividend yield of Universal Health Services (UHS) with the industry average over the last 20 years, it's evident that UHS has often lagged behind. For instance, in 2023, UHS's dividend yield of 0.5248% falls short of the industry's 0.9%. Over the years, there are instances where UHS's dividend yield was notably lower than the industry average, such as in 2013 (0.2461% vs. 0.78%) and more recently in 2022 (0.5678% vs. 0.98%). Despite some years where UHS outperformed the industry, like in 2005 (0.6846% vs. 0.49%) and 2006 (0.5773% vs. 0.47%), these occurrences aren't frequent. Considering the firm's historical data, its dividend yield attractiveness remains less competitive when juxtaposed with that of its peers. The trend suggests UHS might not be the best choice for income-focused investors, as it consistently underdelivers in yield compared to its industry rivals.

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

The dividend growth rate assesses a company's potential for increasing its dividend payouts, which signals financial health and confidence to investors.

Evaluating UHS's Dividend Ratio over the past 20 years, we see sharp fluctuations. Some years exhibit substantial dividends (e.g., 300% in 2004 and 2021), while others, like 2003 and 2023, show zero or negative growth. The Average Dividend Ratio sits at 39.45%, indicative of overall moderate increases. However, the inconsistency can be worrisome; Although UHS has managed to achieve peaks in some years, it lacks consistent, predictable annual growth exceeding 5%. This inconsistency makes long-term trend analysis complex. Therefore, while not inherently bad, investors preferring steady dividends might be cautious.

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

The average payout ratio, calculated by dividing dividends by net income, indicates a company's dividend sustainability. A ratio under 65% over 20 years shows prudent management.

UHS's average payout ratio over the last 20 years stands at an impressively low 6.81%. The values have remained consistently well below the 65% threshold each year, indicating a solid practice of earnings retention. Such financial prudence suggests that UHS is likely to sustain its dividend payments in various economic conditions without putting excessive strain on its financial resources. This trend is highly favorable, as it not only emphasizes the company's capability to reward its shareholders but also its ability to reinvest earnings into the company for future growth. Overall, this low payout ratio highlights UHS's commitment to maintaining a sound financial footing.

Dividends Well Covered by Earnings?

Dividends should ideally be covered by earnings, meaning a company should generate enough profits to pay dividends. A lower payout ratio suggests sustainability.

The trend shows that UHS's Earnings Per Share (EPS) comfortably covers its dividend payments over the years. A higher coverage ratio is generally preferable as it indicates sufficient profits to pay dividends. For instance, in 2003 the ratio was quite low at 0.026, while in 2021 it increased significantly to 0.067. This fluctuation, however, remains well above the safe threshold, suggesting UHS has been consistently in good financial health and able to meet its dividend obligations without strain. This is a positive trend for potential and current investors.

Dividends Well Covered by Cash Flow?

Dividends covered by cash flow refer to the proportion of free cash flow that a company uses to pay dividends. This is crucial for assessing dividend sustainability.

Evaluating Universal Health Services' (UHS) data from 2003 to 2023, we observe significant variability in the coverage of dividends by free cash flow. While in some years such as 2007 (1.98) and 2021 (2.35), UHS had adequate cash flow to cover dividends multiple times over, there are periods of concern like 2006 (-0.101) and 2012 (-0.771), where negative cash flow posed challenges. Despite this, the general trend shows improved coverage in recent years (e.g., 2022: 0.223, 2023: 0.106). This variability highlights occasional vulnerabilities but an overall sustainable trend in recent times. However, growing cash flow to ensure dividend reliability remains essential.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends ensure that investors can rely on consistent returns over time, making it a crucial element for long-term income planning.

Upon reviewing UHS's dividend per share over the past 20 years, it is clear that the dividend payments have seen fluctuations. While UHS did not have a year where the dividend dropped by more than 20%, there are notable changes. For example, in 2009, the dividend decreased from $0.16 to $0.145, and in 2020, it decreased from $0.6 to $0.2. However, these fluctuations were not drastic enough to breach the 20% threshold. These trends suggest that, despite some variability, UHS has largely maintained its dividend stability, which is a positive indicator for income-seeking investors.

Dividends Paid for Over 25 Years?

Indicates whether a company has consistently paid dividends over a long period.

Universal Health Services (UHS) has been paying dividends consistently since 2003, with minor fluctuations in the amount per share, such as 0.04 in 2003, 0.4 in 2015, and 0.8 in 2023. However, this trend is relatively young, only covering 21 years, which is short of the 25-year benchmark. While consistent for the given period, this does not meet the criterion of 25 years, indicating a somewhat reliable, but not exceptionally longstanding pattern.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases involve a company consistently buying back its shares over an extended period. These repurchases are crucial as they indicate a company’s confidence in its future growth, support the stock price, and provide value to shareholders by reducing the number of outstanding shares.

Universal Health Services (UHS) has shown a reliable trend of stock repurchases over the past 20 years. The company has repurchased shares in 14 out of these 20 years, including the recent years of 2022 and 2023. The average annual change in the number of shares, standing at -3.0463%, signifies a consistent effort to buy back shares. For instance, UHS reduced its outstanding shares from 130,178,000 in 2003 to 69,321,000 in 2023, denoting a substantial overall decrease of about 46.7%. Such a trend is beneficial for shareholders as it often results in increased earnings per share (EPS) and, therefore, possibly higher stock prices. This reliable stock repurchase strategy underscores UHS’s strong cash flow and its commitment to returning value to shareholders.