Last update on 2024-06-27

Vulcan Materials (VMC) - Dividend Analysis (Final Score: 5/8)

In-depth dividend analysis of Vulcan Materials (VMC) using an 8-criteria system, final score: 5/8. Evaluate dividend policy stability and performance for income investors.

Short Analysis - Dividend Score: 5

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

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 is a key indicator for investors seeking income through dividends. It measures how much a company pays in dividends each year relative to its stock price.

Vulcan Materials (VMC) has a current dividend yield of 0.7577%, which is significantly lower than the industry average of 1.68%. This low yield can be seen as unfavorable for dividend-focused investors. Over the past 20 years, VMC's dividend yield has fluctuated considerably, peaking at 2.8169% in 2008. Despite significant growth in stock price from $47.57 in 2003 to $227.01 in 2023, the dividend per share has only marginally increased from $0.98 to $1.72 over the same period. This could indicate a prioritization of capital growth via price appreciation on the part of VMC's management. Additionally, the dividend yield declined sharply post-2009 and has not returned to levels seen before the Great Recession. The current trend of low dividend yield relative to the industry average, combined with moderate growth in dividends per share, implies that VMC might not be an ideal choice for those seeking high and consistent dividends.

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

The Dividend Growth Rate measures how much a company's dividend payments have increased over time. Consistently high growth rates can indicate financial health and a commitment to returning value to shareholders.

Analyzing Vulcan Materials (VMC), the Dividend Per Share growth shows high volatility with dramatic increases and notable drops. The 20-year average dividend growth stands at 33.748%, which significantly exceeds the 5% benchmark. However, the inconsistency, including some negative and zero years, highlights potential instability in dividend payments—a red flag for investors seeking steady income. Despite high growth, the unpredictable trend impacts reliability.

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

Explain the criterion for Vulcan Materials (VMC) and why it is important to consider

A consistently low payout ratio is generally considered a sign of a dividend's sustainability because it indicates that the company is not overextending itself by returning too high a portion of its earnings to shareholders as dividends. The criterion specifically looks for an average payout ratio lower than 65% over the last 20 years. Lower payout ratios allow more room for reinvestment in the business.

Dividends Well Covered by Earnings?

The Dividend Payout Ratio indicates how much of a company's earnings are distributed to shareholders in the form of dividends. It is crucial to ensure that dividends are well covered by the earnings, to maintain dividend sustainability.

For Vulcan Materials, the payout ratio has fluctuated significantly over the years. For instance, in 2021, the ratio was 68.8945%, which is relatively high but manageable. However, years like 2009 (-5.8314%) and 2010 (-132.71%) indicate unsustainably high payouts due to negative earnings, which is concerning. Generally, a payout ratio under 50% is considered healthy, ensuring earnings cover dividends multiple times. Periods where the ratio is below 50%, like 2006 (31.58%) and 2007 (40.56%), indicate a favorable trend with well-covered dividends. Overall, while recent ratios suggest improved coverage, historical data reveals volatility that may impact future sustainability.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow imply that a company is generating sufficient cash from its operations to comfortably pay dividends to its shareholders. It's an indicator of financial health and sustainability.

Vulcan Materials (VMC) has shown variability in its Free Cash Flow (FCF) and dividend payouts from 2003 to 2023. In the earlier years (2003-2007), the company had moderate FCF but higher dividend payout ratios, for instance, in 2007 where the dividend coverage was 0.81. The situation was critical in 2012 with a coverage ratio of just 0.04, indicating that dividends were not well covered by the cash flow. The following years showed improvement, with particular strength in 2016, 2018, and 2019 where the FCF significantly increased. However, recent years (2020-2023) presented again a less favorable trend with lower ratios around 0.25 to 0.40, suggesting that while the FCF is higher, the dividend payout amounts have also risen, putting pressure on coverage. Overall, the trend oscillates, showing periods of strong health but also times of tight liquidity concerning dividend coverage.

Stable Dividends Since the Company Began Paying Dividends?

Criterion 4: Stable Dividends Over the Past 20 Years evaluates if the company has consistently paid dividends without any drops exceeding 20%.

Examining the data reveals that Vulcan Materials (VMC) experienced conditions such as in 2008, where the dividend dropped from $1.96 to $1.48 in 2009, more than a 20% decrease. Again, in 2009 to 2011, there was a significant drop below this threshold. This volatility in dividends is unfavorable for income-seeking investors relying on steady income.

Dividends Paid for Over 25 Years?

One important criteria to consider for dividend durability is whether the company has consistently paid dividends for over 25 years

Vulcan Materials (VMC) has demonstrated a track record of consistently paying dividends over the past 25 years. From 1998 to 2023, VMC paid dividends each year, even though the dividend per share underwent fluctuations. The dividend payments remained consistent, indicating a durable and reliable commitment to shareholders. For instance, VMC paid an increased dividend from $0.6933 per share in 1998 to $1.72 per share in 2023. However, the company experienced reductions in dividends during certain economic conditions such as $1.48 in 2009 post-financial crisis, and a significant drop to $0.04 per share from 2012 to 2013, likely indicating economic stress or business restructuring. Despite these decreases, the dividends steadily increased again, culminating in recent higher payouts. This long history of dividends is generally a positive trend and is likely to be attractive to investors looking for stability.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable Stock Repurchases Over the Past 20 Years

Reviewing the stock repurchase trend for Vulcan Materials (VMC) from 2003 to 2023, it’s noticeable that there were few years where share repurchases occurred. Specifically, the company engaged in repurchases during 2006, 2007, 2017, 2018, and 2019. These years had buybacks compared to other years where the number of shares either stayed the same or increased. The average share repurchase rate over these 20 years stands at 1.3554%, indicating minor but consistent efforts when repurchases were undertaken. This trend demonstrates a stable yet limited approach to stock repurchase, suggesting a careful balance of optimizing shareholder value without compromising financial stability. While the frequency of buybacks isn't high, the action taken in specific periods points to a strategic approach, likely where management perceived undervaluation or had surplus capital.