Last update on 2024-06-27

WD-40 (WDFC) - Dividend Analysis (Final Score: 6/8)

WD-40's (WDFC) dividend analysis shows a moderately strong performance with a 6/8 score across eight key criteria for stability and growth.

Short Analysis - Dividend Score: 6

We're running WD-40 (WDFC) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

WD-40 (WDFC) scored a 6 out of 8 on a dividend scoring system assessing performance and stability. Despite a low dividend yield of 0.6944%, which is significantly below the industry average of 2.37%, WD-40 has a strong track record of increasing dividends, with an average annual growth rate of 5.0563% over 20 years. The average payout ratio is sustainably low at 52.93%, indicating prudent financial management. While earnings cover for dividends has recently weakened (0.34 in 2023), cash flow coverage shows a generally positive trend albeit with fluctuations. Dividends have been stable over two decades, and the company has paid out consistently for over 25 years. Reliable stock repurchases underscore strong financial health and commitment to returning value to shareholders.

Insights for Value Investors Seeking Stable Income

Given WD-40's mix of moderate dividend growth, sustainable payout ratios, and long-term stability, it's worth considering for investors seeking a balance between income and stock price appreciation. However, its lower-than-industry dividend yield and recent earnings coverage issues may be a concern for those prioritizing immediate high income from dividends.

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 represents the ratio of a company's annual dividend compared to its share price and indicates the return on investment from dividends alone.

WD-40's (WDFC) current dividend yield of 0.6944% is significantly lower than the industry average of 2.37%. This deviation suggests that WD-40 offers a smaller return on investment through dividend payouts compared to its peers. Observing the trend over the past 20 years, WD-40's dividend yield has experienced a gradual decline from 2.2624% in 2003 to its current level. This decline contrasts with the relatively steady industry average, signaling a less attractive dividend proposition for investors looking for regular income. Coupled with its substantial increase in stock price from $35.36 in 2003 to $239.07 in 2023, the shrinking dividend yield may imply a prioritization of share price growth over dividend returns. However, with a decreasing yield, shareholders might find less incentive purely from the dividend perspective, which is a concerning trend for income-focused investors.

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

The Dividend Growth Rate (DGR) measures the annualized percentage rate of growth in the dividend payments that a company distributes to its shareholders over time. A higher DGR is often indicative of a company's robust financial health and its management's confidence in generating stable or growing revenue in the future.

Examination of WD-40's (WDFC) Dividend Ratio over the last 20 years reveals a highly fluctuating trend. Despite significant annual variations, WDFC maintains an average dividend growth rate of 5.0563%. This figure slightly exceeds the 5% threshold, suggesting a generally positive trend whereby shareholders have witnessed incremental dividend growth over the long term. However, the volatility – with substantial declines in certain years (e.g., -14.8936% in 2003 and -46.7949% in 2023) contrasted by sharp increases (e.g., 47.3684% in 2016) – warrants consideration. These fluctuations imply inconsistent short-term performance but a stable long-term average growth, which can be seen as moderately positive for long-term dividend-oriented investors, but potentially concerning for those expecting consistent year-on-year increases.

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

Payout ratio indicates the portion of earnings a company distributes to shareholders as dividends, important for assessing dividend sustainability.

Analyzing the payout ratios for WD-40 (WDFC) over the past 20 years reveals an average of approximately 52.93%, which is comfortably below the 65% threshold. This implies that WD-40 has historically maintained its dividends within a sustainable range, suggesting a balanced approach between rewarding shareholders and retaining earnings for growth and operations. In fact, during the stretch from 2003 to 2023, the payout ratio only exceeded 65% once, in 2004 with 66.76%. This consistency in maintaining a lower payout ratio indicates prudent financial management and augurs well for the reliability of future dividend payments.

Dividends Well Covered by Earnings?

This criterion examines whether a company's earnings can comfortably cover its dividend payments, ensuring sustainability.

For WD-40 (WDFC), the ratio of Dividends Per Share covered by Earnings Per Share has fluctuated between 0.34 and 0.67 over the past 21 years. Recently, in 2023, it has hit a low of 0.34, indicating that earnings are just sufficient to cover about 34% of the dividends paid out. Historically, this percentage has mostly remained above 0.5, indicating a better coverage. The more recent decline to 0.34 in 2023 suggests that WDFC's ability to cover its dividends with earnings has weakened, which is a negative trend for dividend sustainability.

Dividends Well Covered by Cash Flow?

Dividends being well covered by cash flow is critical as it indicates the company's ability to pay dividends from its actual operations rather than relying on external financing. Sustainably high cash flow coverage ratios highlight robust financial health.

When analyzing WD-40 (WDFC) from 2003 to 2023, the ratio of dividends covered by cash flow fluctuates significantly. For instance, in 2003, the ratio was approximately 35%, improving to around 83.3% in 2017, displaying positive growth trends during several periods. However, the ratio can be quite volatile, as seen in 2022, where it turned drastically negative (-736.76%), albeit recovering slightly to 48.7% in 2023. The steep drop in 2022 corresponds to a negative fiscal result, potentially implying operational or external financial issues. Generally, there is a positive trend despite occasional anomalies, signifying relatively good coverage of dividends by cash flow, important for the company's dividend stability. However, sustained monitoring is advised due to fluctuations.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments over a long period such as 20 years is essential as it reflects the company’s consistency and dependability in generating cash flows sufficient enough to return to shareholders. For income-seeking investors, it’s crucial to trust that a company can maintain rather than drastically cut its dividends during economic downturns.

Analyzing WD-40 (WDFC)'s dividend per share over the past twenty years, from 2003 to 2023, we observe a gradual increase in the dividends with some fluctuations. Most notably, there were two years where the dividend saw a significant drop – in 2015 and 2023. However, none of these annual changes reflect a drop of more than 20%. Even in the more challenging financial years, WD-40 maintained relatively steady dividends, highlighting a reliable income stream for stakeholders. This trend is indicative of the company’s commitment to shareholder returns despite economic variability and showcases solid financial health. It is good as long as investors have a brooding uncertainty of potential market instability.

Dividends Paid for Over 25 Years?

The consistency of dividend payments for over 25 years is a key indicator of a company's financial stability and commitment to returning value to shareholders. It suggests the company has a robust cash flow to support regular payouts.

WD-40 (WDFC) has paid dividends consistently for the last 25 years, as evidenced by the provided data. This trend is favorable for investors seeking stable income, showcasing reliable cash flow management. For instance, the dividend per share (DPS) ranged from $1.28 in 1998 to $1.66 in 2023, with incremental increases most years, indicating solid growth and commitment to rewarding shareholders.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable Stock Repurchases indicate a company's commitment to returning value to shareholders by reducing the number of shares outstanding. Regular repurchases can be a signal of strong financial health.

WD-40 (WDFC) has demonstrated a consistent pattern in repurchasing shares over the past 20 years. The company has reduced its share count from approximately 16.8 million in 2003 to around 13.6 million in 2023. This translates to an average annual reduction of -1.0292%. This trend suggests strong financial health and a commitment to increasing shareholder value. Reliable stock repurchases, noted in several years including post-Great Recession periods (2008, 2009) and consistently from 2012 onwards, further strengthen this viewpoint. Overall, this trend is positive for investors.