Last update on 2024-06-27

Zimmer Biomet Holdings (ZBH) - Dividend Analysis (Final Score: 5/8)

Zimmer Biomet Holdings (ZBH) gains a 5/8 final score in dividend analysis, showcasing performance, yield history, growth rate, and dividend policy stability.

Short Analysis - Dividend Score: 5

We're running Zimmer Biomet Holdings (ZBH) 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?

Understand the dividend yield and its significance. It shows the annual dividend income an investor receives per dollar of investment, critical for assessing income-focused investments.

While Zimmer Biomet Holdings' current dividend yield of 0.7888% is notably higher than the industry average of 0.29%, indicating a more attractive income opportunity compared to peers, historical data shows significant fluctuation. For instance, a yield of 1.0801% in 2012 compared to 0.7529% in 2022 suggests varying company performance stability. Investors should weigh this inconsistency along with the recent positive trend relative to industry norms.

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

The Dividend Growth Rate criterion assesses whether a company's dividends have shown a consistent increase of more than 5% annually over a prolonged period. Such growth signifies robust financial health and reliability for investors seeking regular income streams.

Zimmer Biomet Holdings (ZBH) has shown zero to negative growth in annual dividends over the last 20 years, with notable fluctuations (e.g., a high of 38.8889% in 2013, followed by a negative rate of -12% in 2014). Given these dividend rates, we observe that the average dividend ratio is 1.713, which is significantly below the desired 5% growth rate. Concurrently, the zero dividends for most years indicate that the company does not prioritize regular dividend payouts. This trend is not favorable for dividend investors, considering it fails to assure a reliable source of dividend income.

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

Detailed analysis of a 20-year average payout ratio and the significance of maintaining it below 65%.

Analyzing the 20-year data, it is observed that Zimmer Biomet Holdings has had payout ratios involving values that are positive and negative, indicating the occasional reinvestment of earnings and payout during surplus. Given the Average Payout Ratio of 10.831%, this is tremendously below the 65% threshold. For dividend investors, this number should be very comforting since a consistently low payout ratio suggests a company's solid conservation of earnings for reinvestment and a greater margin of safety for dividend sustainability. The lower payout ratio could signal strong financial health and ability to reinvest in growth activities.

Dividends Well Covered by Earnings?

The criterion evaluates whether a company's dividends are sufficiently covered by its earnings, measured by the dividend payout ratio (DPR). It ensures that dividend payouts are sustainable over the long term.

Analyzing Zimmer Biomet Holdings' Earnings Per Share (EPS) and Dividend Per Share (DPS), it is evident that the company's dividend coverage by EPS has been inconsistent. From 2003 to 2010, there were no dividend payments, hence a 0% coverage ratio. Starting from 2011, the DPR fluctuated: from a low of 0.167 in 2012 to a high of 1.136 in 2015. Notably, years like 2015 show an EPS spike due to lower DPS, while 2017 and 2020 show negative EPS affecting the coverage negatively. For a healthy payout ratio between 30% to 50%, sustainable periods are found in 2012 to 2014 (approx. 20-22%) and 2022 (approx. 86%). The inconsistency is a red flag; however, the trend of relatively low and consistent payouts in mid-range years offers some reassurance.

Dividends Well Covered by Cash Flow?

Dividends Well Covered by Cash Flow is a critical measure as it indicates whether a company generates sufficient free cash flow to cover its dividend payments. This ensures the sustainability of dividend payouts and signals financial health and prudent management.

The trend of Zimmer Biomet Holdings (ZBH) shows that from 2010 onwards, the company's dividends have been consistently covered by its free cash flow, albeit with varying coverage ratios. In 2010, dividends covered by free cash flow stood at approximately 9.1% and demonstrated volatility through the years, peaking at approximately 24.2% in 2015. The lowest coverage was about 9.1% and the highest being around 24.2%, while the most recent value is approximately 16.7% in 2023. Despite some fluctuations, the overall trend is positive, showing adequate coverage of dividends by free cash flow, which bodes well for the company's financial stability and ability to maintain or potentially grow its dividend payouts. Even in 2015, where the coverage was highest at around 24.2%, the company demonstrated strong cash generation ability. The years following have shown slight dips, but coverage remained within a reasonable range, hence this trend can be considered good for long-term investors looking for sustainable dividend income.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends over the past 20 years is crucial as it demonstrates a company's consistent financial health and commitment to returning value to shareholders. A drop in dividend per share above 20% could indicate potential financial distress or changes in capital allocation priorities, making it an important factor for income-seeking investors to consider.

Analyzing Zimmer Biomet Holdings' historical dividend payments, it becomes evident that the company commenced dividend distributions in 2012. From 2012 onwards, the dividend payments have been consistently stable at around $0.96 per share annually starting from 2016. However, there was a noticeable hitch from 2013 to 2014, where the dividend per share decreased from $1 to $0.88. This represents a decline greater than 12% but does not hit the alarming 20% marker. Despite this minor drop, the overall stability in dividend payments since introduction is significant. The uniformity post-2015 signifies Zimmer Biomet's steady commitment to delivering shareholder value. This trend is generally favorable for income-seeking investors, indicating financial stability and reliable dividend distribution.

Dividends Paid for Over 25 Years?

Dividends paid for over 25 years show the company's commitment to returning capital to shareholders and financial stability.

Zimmer Biomet Holdings (ZBH) has paid dividends for 10 consecutive years since 2013, as revealed by the records from 1998 to 2023. Although this span is less than the 25 years mark, it demonstrates a consistent dividend-paying trend over the past decade. With annual dividends ranging between $0.72 and $1.00 per share, the company has shown a stable approach in shareholder payouts. While the 25-year criterion is not met, the consistent payouts over the last decade reflect a positive trend in maintaining shareholder value and financial stability.

Reliable Stock Repurchases Over the Past 20 Years?

Zimmer Biomet Holdings

Analyzing the number of shares outstanding over the past 20 years, we observe significant share repurchases for Zimmer Biomet Holdings (ZBH) in years such as 2006-2014, 2018, and most recently in 2023. This pattern of stock buybacks, averaging approximately 9.57% over the last 20 years, showcases a strategic capital allocation towards repurchasing shares, consequent reduction of share count, thereby increasing the value of remaining shares. Consistent buybacks suggest the company's robust cash flow and a strong financial position, a positive indicator for prospective and current investors.