Last update on 2024-06-27

Umpqua Holdings (UMPQ) - Dividend Analysis (Final Score: 5/8)

Analyze Umpqua Holdings (UMPQ) dividend performance and stability, achieving a score of 5/8 in our comprehensive 8-criteria system.

Short Analysis - Dividend Score: 5

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

The dividend analysis evaluates Umpqua Holdings (UMPQ) using an 8-criteria scoring system. UMPQ has a history of higher-than-average dividend yields but recently saw a sharp decline. Dividend growth over 20 years averages high but is inconsistent. The payout ratio remains mostly below the 65% threshold, showing financial flexibility, though some years exceeded it. While earnings and cash flow have generally covered dividends, sporadic financial issues pose concerns. Dividend stability is a problem with several significant drops in payments. UMPQ has paid dividends for over 25 years and has maintained reliable stock repurchases in recent years.

Insights for Value Investors Seeking Stable Income

Based on the analysis, while Umpqua Holdings has a strong history and certain positive traits like low payout ratios and reliable stock repurchases, the recent sharp decline in dividend yield, inconsistent dividend growth, and lack of stability are concerning. For income-focused investors, UMPQ may not be a top choice due to the unreliability in dividend payments. However, longer-term investors looking at overall company health and capital return programs may still find it worth consideration.

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 is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price. It's an important indicator because it reflects the return on investment from dividends alone and is attractive to income-focused investors.

Historically, Umpqua Holdings' (UMPQ) dividend yield ranged from 0.77% in 2003 to peak at 5.16% in 2018. Over the last 20 years, it often surpassed the industry average, denoting a strong dividend performance. More recently, however, UMPQ's current dividend yield of 1.0019% falls significantly below the industry average of 2.76%. This stark decline is concerning for dividend-focused investors, especially following its previous higher yields. The stock price's fluctuations and the sharp drop in dividend per share from $0.84 in 2022 to $0.21 in 2023 clearly elucidate this trend. This shift may signal underlying financial challenges or strategic changes within UMPQ, necessitating a deeper analysis into its financial stability and dividend sustainability. Overall, while past performance was robust, the recent sharp decline in the dividend yield relative to the industry average paints a rather discouraging trend for prospective investors.

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

The Dividend Growth Rate assesses the annualized percentage rate of growth of a company's dividend payments to shareholders. A rate higher than 5% over a sustained period, such as 20 years, indicates a strong financial status and commitment to returning capital to shareholders, which is vital for investor confidence.

Analyzing the numbers for Umpqua Holdings (UMPQ) from 2003 to 2023, the dividend growth rates are highly volatile. This can be seen from high growth values in some years (e.g., 2004 at 37.5%, 2005 at 45.4545%, 2013 at 41.6667%) to negative values in other years (e.g., 2008 at -16.2162%, 2020 at -25%). The average dividend growth rate is around 10.48%, which surpasses the 5% threshold comfortably. However, the inconsistency and frequent negative rates in certain years contribute to a volatile, unstable dividend growth pattern. This instability can be a concern for long-term dividend-focused investors even though the average growth rate is decent.

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

The Payout Ratio represents the proportion of earnings a company pays to its shareholders in dividends. Maintaining a payout ratio lower than 65% over an extended period, such as 20 years, is crucial as it indicates that the company is retaining enough earnings to reinvest in its business, sustain its operations, and potentially grow its dividends in the future. A lower payout ratio also provides a buffer during economic downturns, ensuring dividend stability.

Umpqua Holdings (UMPQ) has maintained an average payout ratio of 43.66% over the past 20 years which is below the 65% threshold. This is a good trend as it suggests that the company has consistently paid out less than half of its earnings as dividends. Notably, in years like 2007, 2008, 2009, 2010, 2014, 2017, and 2018, the payout ratio exceeded 65%, indicating more challenging periods. Specifically, the ratios in 2007 (70.48%) and 2008 (73.41%) were elevated due to economic stress during the financial crisis. Nonetheless, maintaining a long-term average below 65% reflects a balanced approach to dividend policy and financial flexibility, key for the firm's sustainable growth and resilience.

Dividends Well Covered by Earnings?

Criteria analyzing whether dividends are adequately covered by earnings examine the sustainability of the company's payout capabilities. If a firm consistently pays out more in dividends than it earns, this could signal future financial distress.

From 2003 to 2008, Umpqua Holdings (UMPQ) showed a consistent trend of covering dividends with their earnings, with the dividend coverage ratio ranging from approximately 13.5% to 73.4%. This is generally seen as sustainable. In 2009, UMPQ faced a significant negative EPS, resulting in a negative dividend coverage ratio of -9.18%, indicating a critical financial strain likely due to the broader economic downturn and its specific challenges. From 2010 onwards, UMPQ appeared to recover, generally showing positive trends in covering dividends with earnings, with notable improvements in coverage ratios hovering around 60% to 77%. These trends suggest improved and sustainable dividend payouts. However, in years of stark negative EPS, such as 2020, a negative coverage ratio surfaced again (-9.11%). Importantly, the company recovered in subsequent years, suggesting resilient measures. Overall, while sporadic financial challenges are evident, the long-term dividends payout principally appears well-covered by earnings, denoting a good alignment between profits generated and dividends distributed.

Dividends Well Covered by Cash Flow?

The criterion 'Dividends Well Covered by Cash Flow' assesses whether a company's operational cash flow can comfortably cover its dividend payments. A healthy ratio suggests sustainability.

Examining the data from 2003 to 2023, we can observe that Umpqua Holdings has experienced varied levels of free cash flow coverage for its dividend payouts. In the early years (2003-2008), the coverage ratios were relatively low, indicating potential concerns about the company's ability to sustain dividends from its operations. However, notable improvements occurred between 2009 and 2022. Particularly, years like 2011 exhibited an unusually high coverage ratio of over 12, which might point to extraordinary cash flow situations rather than a consistent trend. Post-2016, the coverage ratios stabilized around healthier figures (~0.28 to 0.35), except for a significant dip in 2019 (-1.99) indicating negative free cash flow. By 2022, the ratio was down to 0.176, and in 2023, it dropped to 0, given the absence of both free cash flow and dividend payout. Overall, while some years suggest strong dividend sustainability, the inconsistency highlights potential risks. Investors should consider whether the improved periods reflect sustainable practices or short-term anomalies.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments, where the dividend per share did not drop by more than 20% over the past two decades, is of utmost importance for income-seeking investors.

While the stability of dividends is paramount for income-seeking investors, Umpqua Holdings (UMPQ) has encountered several significant drops in dividend payments over the past two decades. Notably, there were substantial reductions around the 2008 financial crisis, from $0.74 in 2007 to $0.62 in 2008, and then a precipitous drop to $0.20 in 2009. The dividend per share has shown variability since then, with another marked reduction in 2023 to $0.21. This inconsistency indicates a higher risk for investors relying on dividends as a stable source of income. The erratic dividend trends might make Umpqua Holdings less attractive to conservative income investors seeking stability and reliable cash flow from dividend payments.

Dividends Paid for Over 25 Years?

Explain the criterion for Umpqua Holdings (UMPQ) and why it is important to consider

Dividend payments over a period of 25 years is a strong indicator of stability and reliability in a company's financial practices. A consistent history of paying dividends suggests that the company is generating sufficient earnings to support shareholder returns. These payments are crucial for investors seeking predictable income streams and can also signal confidence in the company’s long-term profitability and cash flows.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable Stock Repurchases Over the Past 20 Years

Given the data, we observe a periodic reduction in the number of shares outstanding, particularly from 2016 onwards. In 2012, the number of shares significantly increased due to Umpqua's merge with Sterling Financial Corporation, inflating the share count. Post-2016, the consistent buyback trend is appreciable as it highlights management's commitment to returning value to shareholders. For example, the share count decreased from 221,045,000 shares in 2015 to 217,055,008 shares in 2023. Reliable stock repurchases signify strong cash flows and intentions to enhance shareholder value via capital returns. This trend is undeniably good, indicating fiscal health and proactive capital management.