Last update on 2024-06-27

U.S. Bancorp (USB) - Dividend Analysis (Final Score: 7/8)

U.S. Bancorp (USB) Dividend Analysis: Get insights into USB's dividend policy with a score of 7/8, including yield, growth rate, payout ratio, and cash flow coverage.

Short Analysis - Dividend Score: 7

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

The analysis evaluated U.S. Bancorp (USB) against eight criteria to measure dividend performance and stability, with a score of 7 out of 8. USB boasts a high dividend yield of 4.4593%, well above the industry average, making it attractive for income-focused investors. However, its average annual dividend growth rate, despite being about 14.84%, shows significant volatility, raising concerns about consistency. USB’s average payout ratio is a conservative 41%, indicating prudent financial management. Dividends are generally well-covered by earnings and cash flow, though some years show variability. The company has paid dividends for over 25 years, highlighting its long-term stability. While stock repurchases have been generally reliable, there are some inconsistencies.

Insights for Value Investors Seeking Stable Income

Overall, U.S. Bancorp (USB) appears to be a solid choice for investors seeking consistent dividends, as it demonstrates good financial health and a strong history of dividend payments. However, the inconsistent growth rate and occasional variability in coverage ratios suggest it may not be the best fit for those seeking absolute stability. Consider investing if you are prepared for some fluctuation and aim to benefit from USB's strong dividend yield and prudent management.

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 an important metric for investors as it measures the annual dividends paid out by the company as a percentage of its stock price. A higher dividend yield indicates that investors are receiving a higher return on their investment from dividends.

U.S. Bancorp's (USB) current dividend yield of 4.4593% is significantly higher than the industry average of 2.76%. This could be interpreted positively, suggesting that the company returns a good portion of its earnings to shareholders in the form of dividends. Looking at the historical data provided, U.S. Bancorp has maintained a relatively strong dividend yield, experiencing fluctuations based on market conditions. Notably, the yield spiked in 2008 during the financial crisis and remained high until 2010, before stabilizing again. Recently, in 2023, the yield stands well above the industry average, which can be attractive for income-focused investors. However, it's also vital to consider that such a high yield could signal potential risks, such as market perception of future earnings growth challenges or sector-specific issues. Nonetheless, based on the data, this trend is generally favorable from a dividend perspective, as long as the underlying financial health of the company remains solid.

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

The criterion checks whether the Dividend Growth Rate has been consistently higher than 5% over the past 20 years.

Looking at U.S. Bancorp's dividend growth numbers over the last 20 years, there is a significant fluctuation in the per share dividend ratios, with values ranging from a high of 150% in 2011 to a low of -88.2353% in 2009. The Average Dividend Ratio is calculated to be approximately 14.84%, which is above the 5% threshold. While the overall average indicates a positive trend, the yearly volatility suggests inconsistency. Specifically, recessions or financial crises such as the 2008 crisis have adversely affected the company's dividends, evidenced by dramatic drops in 2008 and 2009. Despite exceptional growth years like 2011, the inconsistency is a concern for investors seeking stable dividend growth. Thus, this criterion shows mixed results. The positive average is good, but the volatility suggests that long-term, consistent growth exceeding 5% is not guaranteed.

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

Average Payout Ratio lower than 65% indicates that a company is paying out a sustainable portion of its earnings as dividends.

The data shows that over the past 20 years, U.S. Bancorp (USB) has maintained an average payout ratio of approximately 41%. This figure is significantly below the 65% threshold, indicating a conservative approach toward dividend distribution. USB's ability to keep this ratio relatively low, even amidst financial downturns like in 2008 (where it spiked to 101.39%), reflects prudent financial management focused on long-term sustainability. Other instances of low payout ratios go as low as 11.58% in 2010, suggesting strong earnings retention for reinvestment and future growth, making this trend favorable for maintaining dividend stability and potential increases.

Dividends Well Covered by Earnings?

Explain why it is important for dividends to be covered by the earnings for U.S. Bancorp (USB)

Having dividends well covered by earnings ensures financial stability and sustainability for a company. It suggests that the company generates enough profit to comfortably pay out dividends to shareholders without jeopardizing its operational needs or resorting to excess borrowing. For U.S. Bancorp (USB), this is critical as it inspires confidence among investors regarding the company's profitability and prudent financial management.

Dividends Well Covered by Cash Flow?

Examining whether dividends are well covered by free cash flow assesses a company's ability to sustain its dividend payments without having to resort to external financing or compromising on its cash reserves.

U.S. Bancorp (USB)'s coverage ratio of dividends by free cash flow (FCF) has demonstrated variability over the last two decades. The ideal situation is to have a ratio below 1, indicating that the company generates enough free cash flow to cover its dividends. USB's ratio ranged from highly secure levels such as 0.090 in 2010 to an exceptionally high 1.093 in 2007, signaling an overextension that year. Recent years, especially 2022 and 2021, reflect strong coverage at ratios of 0.1456 and 0.2925, implying a good, but not excellent, safeguard for dividends. Peaks, like the 0.767 in 2020 and 0.561 in 2019, still remained below the critical level of 1, pointing to acceptable coverage. Exceptionally low ratios like 0.171 and 0.090 in 2009 and 2010 correspond to financial recovery periods post-2008 crisis when companies were amassing cash reserves cautiously. USB maintains an overall reasonable standard of cash flow coverage for its dividends, although some years demand caution for income-focused investors relying on dividends. The ideal stable coverage trend should be targeted to reassure ongoing dividend reliability.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments over the past 20 years is a key factor in assessing a company's financial health and reliability.

Examining U.S. Bancorp's dividend payments over the last 20 years, we observe a significant drop in 2009 where the dividend per share decreased from $1.7 in 2008 to $0.2 in 2009, representing an approximate 88% decline. This sharp decrease happened during the financial crisis when many banks faced severe challenges. Despite this drop, U.S. Bancorp has shown a strong recovery and steady increments in dividends post-2009, culminating in a current dividend of $1.93 per share. This trend is generally positive, highlighting the company’s resilience and commitment to returning capital to shareholders, though the drop in 2009 is a critical factor to consider for income-seeking investors focusing on dividend stability.

Dividends Paid for Over 25 Years?

Dividends Paid for Over 25 Years shows whether the company has a long-standing history of returning value to its shareholders.

U.S. Bancorp (USB) has paid dividends continuously for over 25 years, from 1998 to 2023, as evidenced by the provided data on dividends per share. This long-term commitment to dividend payments signifies USB's stability and consistent profitability over multiple economic cycles, which is an excellent indicator for investors seeking reliable income. The ability to maintain and grow dividends through financial crises (e.g., the 2008 crisis and COVID-19 pandemic) further enhances USB's credibility and attractiveness. For instance, although there was a significant dip in 2009 and 2010, the dividends rebounded and have been rising consistently, reaching $1.93 per share in 2023. Overall, this trend is very favorable for dividend-focused investors.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases over a long-term period, such as 20 years, are important as they indicate a company's consistent effort to return value to its shareholders, often reflecting strong cash flow and confidence in the business.

U.S. Bancorp has shown a mixed trend with its share repurchase strategy over the last two decades. There have been fluctuations in the number of shares outstanding, which tells a story of both repurchases and periods of stock issuance or inactivity. Key years of reliable repurchasing can be observed from 2004 to 2021, with the number of shares consistently decreasing except for certain years when it saw slight increases or stayed flat. Particularly notable decreases can be seen from 2009 onward till 2021, with shares dropping from over 1.8 billion to below 1.5 billion. This average repurchase rate of -1.0963% per year is a positive sign, indicating an overall reduction in shares outstanding, albeit with some inconsistency. This trend is good as it generally suggests the company's commitment to increasing shareholder value through buybacks, but the recent increase in 2023 could be a point of concern.