Last update on 2024-06-27

Woodward (WWD) - Dividend Analysis (Final Score: 7/8)

Analyze the stability and performance of Woodward (WWD) dividends using an 8-criteria scoring system. Final Score: 7/8.

Short Analysis - Dividend Score: 7

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

The dividend analysis evaluates Woodward's (WWD) dividend policy across 8 criteria, yielding a score of 7. Woodward's dividend yield has been lower than the industry average. The company demonstrates a high dividend growth rate, a low average payout ratio, and their dividends are well-covered by earnings but fluctuate when covered by cash flow. Despite some inconsistent coverage by cash flow, dividends have been stable over 20 years, with only minor interruptions. They have also paid dividends for over 25 years, showing commitment to shareholder value. Moreover, they have engaged in reliable stock repurchases, indicating confidence in their future prospects.

Insights for Value Investors Seeking Stable Income

Based on the analysis, WWD seems like a relatively stable company with a solid dividend policy, although it lacks in high yield compared to industry standards. If you're seeking a high dividend yield specifically, WWD might not be the first choice. However, their consistent dividend growth and long-term payout history could offer dependable income over time. It's worth considering but maybe alongside other higher-yielding stocks to balance the portfolio.

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 financial ratio that shows how much a company pays out in dividends each year relative to its stock price. It is an essential metric for income-focused investors looking to earn dividend income.

Over the past 20 years, Woodward’s dividend yield has mostly been below the industry average. In the most recent year, Woodward's dividend yield was 0.6464%, notably lower than the industry average of 1.16%. Historically, Woodward's dividend yield peaked in 2003 at 1.6892% and gradually declined over the years, reaching a low of 0.4303% in 2020 before slightly rising again. This trend is generally not favorable for investors seeking high dividend yield as the industry's yield remains consistently higher. However, the rising stock price of WWD over the years suggests that total shareholder returns may still be attractive despite the lower yield.

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

Why is the Dividend Growth Rate over an extended period, such as 20 years, an important criterion for assessing a company's dividend policy?

A higher Dividend Growth Rate over a long period, such as 20 years, generally indicates that a company is consistently strong in its earnings and cash flow. This metric helps investors to understand the long-term sustainability and reliability of dividend payments. A growth rate higher than 5% suggests a promising outlook for income-focused investors.

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

Average Payout Ratio ideally should be lower than 65% as it indicates a company is retaining earnings to reinvest in growth while still returning some profits to shareholders.

Woodward (WWD) exhibits an average payout ratio of 22.01% over the last 20 years. This is well below the threshold of 65%, indicating a prudent approach in balancing dividend payouts with reinvestments into the company. The company has managed to keep its payout ratio consistently low, with a peak payout ratio of 88.54% in 2003, which quickly corrected in the subsequent years. This conservative approach is generally positive, suggesting the company prioritizes sustainable growth while still providing value to shareholders through dividends.

Dividends Well Covered by Earnings?

Dividends should ideally be covered by earnings to ensure financial stability and prevent the company from incurring additional debt or reducing capital investments. This is important for both dividend sustainability and the firm's long-term health.

The dividend coverage ratio, calculated as earnings per share (EPS) divided by dividend per share (DPS), indicates how many times the dividends are covered by earnings. For Woodward (WWD), this ratio has fluctuated over the years but presents some positive signs. A coverage ratio above 2x is typically considered healthy. Woodward’s recent past shows a ratio ranging notably higher after 2018, especially hitting 3.8787 in 2023, which is very solid and implies that Woodward's dividends are well covered by its earnings, signifying financial prudence. However, during the years like 2009 (0.1756) and 2020 (0.1355), the coverage was notably lower, raising some concerns. Overall, the trend appears positive from 2013 onwards with few dips, suggesting that while the firm had challenging years, it is better positioned now to cover dividends comfortably.

Dividends Well Covered by Cash Flow?

This criterion measures if Woodward's (WWD) dividends are adequately covered by its free cash flow. It is important because a company's ability to generate sufficient cash flow to cover dividend payments ensures sustainability and lowers the risk of a dividend cut.

The dividend coverage ratio calculated by dividing the free cash flow by the Dividend Payout Amount reveals how many times over the company's available cash can cover its dividend payments. For Woodward (WWD), the figures fluctuate significantly over the years, with ratios generally below 1, indicating that dividends are not consistently well-covered by free cash flow. For example, in 2009 and 2021, the coverage ratio drops to as low as 0.085 and 0.084, respectively, suggesting that the company doesn't always generate enough cash to sustain its dividend payments. However, in 2015, the ratio spikes to 30.166, an anomalous year where free cash flow drastically overshadows dividend payouts. This inconsistency is generally a negative trend, raising concern about dividend sustainability, except in years of extraordinary cash flow generation.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends over an extended period highlight a company's consistent profitability and commitment to returning value to shareholders, which is immensely comforting for income-seeking investors.

By closely analyzing Woodward's dividend history over the past 20 years, it is evident that the firm's dividend per share has exhibited commendable stability. Starting from $0.16 in 2003, the dividend saw uninterrupted growth until 2022, reaching a peak of $0.95 in 2022. However, the most crucial observation is that in 2008, there was a slight renegotiation from $0.22 in 2007 to $0.21 in 2008; though this did not amount to a drastic 20% drop. In 2020 due to unprecedented economic turmoil caused by the Covid-19 pandemic, the dividend dropped from $0.652 to $0.523, reflecting approximately a 20% reduction. Despite this, the company's decision to bounce back strongly with subsequent dividends indicates swift resilience. Overall, the occasional dip does not heavily burden its otherwise stable and gradually rising dividend payout, which remains robust and reliable for income-oriented investors.

Dividends Paid for Over 25 Years?

Examine if Woodward (WWD) has paid dividends for over 25 years and evaluate why it's vital.

With a continuous dividend payout from 1998 to 2023, Woodward (WWD) demonstrates stability and a commitment to returning value to shareholders. This trend is favorable as it suggests financial health and investor confidence.

Reliable Stock Repurchases Over the Past 20 Years?

Explain the criterion for Woodward (WWD) and why it is important to consider

Stock repurchases indicate that a company is confident in its future prospects, as Repurchasing shares reduces the number of outstanding shares, thereby increasing the ownership stake of existing shareholders. Assessing whether Woodward has reliably repurchased stock over the past 20 years can give investors insights into the company's capital allocation strategy and its potential for value creation.