Last update on 2024-06-27

Welltower (WELL) - Dividend Analysis (Final Score: 2/8)

Discover the performance of Welltower (WELL) dividends through a comprehensive analysis using an 8-criteria scoring system. Final Score: 2/8.

Short Analysis - Dividend Score: 2

We're running Welltower (WELL) 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 and its importance

The lower dividend yield of 2.706% compared to the industry average of 6.2% can be seen as negative under certain conditions. From 2003 to 2023, Welltower's dividend yield has generally trended downward, peaking in 2009 at 7.2566% and reaching its lowest point in 2023. The steady decline since 2020, from  4.1783% to 2.706%, suggests potential issues with the company’s ability to pay dividends or perhaps a strategic repositioning. Moreover, the current yield is significantly below the industry standard of 6.2%, which raises red flags about the stock's investment value, especially for those prioritizing income generation through dividends.

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

Interpret if the Dividend Growth Rate is higher than 5% in the last 20 years.

Upon examining the dividend per share ratios from 2003 to 2023, we observe significant volatility, some years showing negative ratios (e.g., 2007 and 2019) while other years exhibit exceptionally high positive ratios. Despite these fluctuations, the average dividend growth rate over this period is approximately 0.645%. Given these figures, it is evident that the dividend growth rate has not maintained a consistent growth rate of higher than 5% annually. Instead, the overall trend appears to be far less stable and closer to stagnation, failing to meet the 5% growth benchmark. This trend is concerning for investors seeking stable, growing dividend income.

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

The average payout ratio indicates the percentage of earnings a company distributes to shareholders in the form of dividends. A ratio under 65% is considered sustainable as it suggests the company is retaining enough earnings to reinvest and grow.

Based on the provided data, Welltower (WELL) has an average payout ratio of 230.68% over the past 20 years. Given that a healthy payout ratio is usually below 65%, this trend is unsustainable. A persistently high payout ratio above earnings signals that Welltower has been paying out more than it earns, which is concerning since it may indicate that the company is funding dividends through debt or asset sales. Long-term, this financial trajectory is unfavorable because it undermines the company’s ability to invest internally in growth opportunities or weather economic downturns.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings

Covering dividends with earnings is an indicator of a company's financial health and sustainability. If a company’s Earnings Per Share (EPS) consistently exceeds its Dividend Per Share (DPS), it suggests the company is generating sufficient earnings to support its dividend payments without compromising its financial integrity. Analyzing Welltower’s EPS and DPS from 2003 to 2023, we observe notable fluctuations. In the early to mid-2000s, the coverage was above 1, indicating dividends were well-covered by earnings. However, the coverage ratio experienced significant downturns, especially in 2008 and the years following 2018, when it dipped below 1. For instance, in 2020 and 2021, the coverage ratios were 3.0847 and 7.9869, respectively, suggesting dividends are amply covered by earnings. This episodic trend reveals moments of both strong and weak financial assurance regarding dividend sustainability.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow indicate that a company has enough cash generated from operations to pay its dividends, which is crucial for financial sustainability.

The coverage ratio of dividends by cash flow for Welltower (WELL) shows a significant improvement over the years. From 2003 to 2010, the ratio was below 1 and even negative, which suggests that the company was not generating enough free cash flow to cover its dividend payments during that period. This is a red flag for investors because the company may have to resort to other means, like debt or equity financing, to maintain dividend payments. However, from 2011 onwards, the coverage ratio turned positive and mostly above 1, indicating that Welltower consistently generated more free cash flow than the amount paid out in dividends. For example, in 2012, the ratio was 0.883, and despite slight fluctuations, it improved to 1.119 in 2017. Most recently, it stood at 0.812 in 2023. Although the ratio has seen a slight decline in the past few years, it remains relatively strong, suggesting general financial health and a decent ability to cover dividends with cash flow. Overall, this trend shows a positive evolution in the company's financial management and its ability to sustain dividend payments, which is encouraging for investors.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividend payments are crucial for income-seeking investors as they provide a consistent stream of income. The gauge of stability over two decades ensures that the company can sustain dividends through various economic cycles.

Reviewing Welltower's dividend per share over the past 20 years reveals that it ranged from $2.34 in 2003 to its peak of $3.48 in 2015, 2016, and 2017, followed by a reduction to $2.44 in the years 2021-2023. Even though there were fluctuations, the dividends never dropped by more than 20% in a single year. For example, the largest drop occurred between 2017 and 2018, where it went from $3.48 to $2.7, approximately a 22.4% decrease. Maintaining dividends in the range of $2.34 to $3.48 over two decades despite one notable drop signifies that while the company faced challenges, it generally provides a stable payout. Income investors might view this trend as unfavorable primarily due to the single, significant cut impacting trust in long-term dividend stability.

Dividends Paid for Over 25 Years?

Long-term consistency in paying dividends is a testament to a company's financial stability and commitment to returning capital to shareholders. Such a record can attract long-term investors and is often a sign of a mature and profitable company.

Welltower (WELL) has consistently paid dividends for over 25 years, with annual payouts recorded from 1998 to 2023. Initially, the dividends per share started at $2.19 in 1998 and saw gradual increases over the years, peaking at $3.48 in 2017 and 2018. Notably, even during economic downturns such as the Global Financial Crisis in 2008 and the COVID-19 pandemic in 2020, the company maintained its dividend payments, albeit at slightly reduced levels of $2.7 in both 2008 and 2020. This consistency highlights Welltower's robust financial health and its management's commitment to shareholder returns. While the cuts during downturns could be seen as a minor red flag, the overall trend of increasing dividends suggests solid long-term performance. This trend is favorable for shareholders looking for a reliable income stream.

Reliable Stock Repurchases Over the Past 20 Years?

Stock repurchases, or share buybacks, occur when a company buys back its own shares from the marketplace. This can be a sign of numerous positive factors such as excess cash flow, confidence in the company's future, or an attempt to improve financial metrics by reducing shares outstanding. Consistent repurchasing over a long period is often seen positively.

Welltower has shown no reliable stock repurchases over the past 20 years as the number of shares outstanding increased from 44.2 million in 2003 to 515.629 million in 2023. This indicates that Welltower has not prioritized buying back shares, which can be seen as a negative trend if one were expecting signals of strong excess cash flow and confidence in overall financial health. Instead, the company has increased its share count significantly, potentially issuing new shares to raise capital for investments or to fund operations. Yet, this could potentially dilute shareholders' value. Therefore, from the perspective of stock repurchases, Welltower does not present a favorable trend.