Last update on 2024-06-27

Zoetis (ZTS) - Dividend Analysis (Final Score: 6/8)

Analyze the performance and stability of Zoetis (ZTS) dividends using a detailed 8-criteria scoring system. Final score: 6/8.

Short Analysis - Dividend Score: 6

We're running Zoetis (ZTS) 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 measures the amount of cash dividends paid out to shareholders relative to the market value per share.

Zoetis' current dividend yield of 0.76% is lower than the industry average of 1.09%. Historically, Zoetis has had lower dividend yields compared to the industry, with past yields ranging from 0.195% in 2013 to a high of 0.8871% in 2022. This trend suggests that while Zoetis might focus more on growth and reinvesting profits into the business, it does not provide as much immediate income to investors compared to industry peers. From a stock price perspective, Zoetis has seen significant appreciation from $32.69 in 2013 to $197.37 in 2023, indicating solid capital gains despite the lower dividend yields. While this trend might be viewed negatively by income-focused investors, growth-oriented investors could see it as acceptable or even positive.

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

The Dividend Growth Rate measures the annualized percentage rate of growth of a company's dividend per share over a specified period, often used to estimate the potential for future dividend income. A growth rate higher than 5% suggests a company's strong financial performance.

Upon examining Zoetis's dividend per share ratio from 2009 to 2023, several insights emerge. The Dividend Growth Rate criterion necessitates a thorough analysis of ongoing increases. Given figures, particularly notable ratios include the hike in 2014 (84.6154%), 2021 (64.95%), and 2019 (30.1587%). However, there are also years of decline, such as 2015 (-7.7778%) and 2022 (-1.4853%). Despite these fluctuations, the average dividend ratio stands at a solid 16.85206%, significantly over the 5% benchmark. This suggests overall positive growth trend in dividends, indicative of Zoetis's robust financial health and shareholder value creation, which is a promising aspect for long-term investors. However, volatility in certain years raises questions about consistency, warranting further scrutiny into these anomalies.

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

The payout ratio indicates the proportion of earnings a company distributes to shareholders in the form of dividends. An average payout ratio lower than 65% signifies a conservative approach, suggesting the company retains a significant portion of its earnings for reinvestment or deleveraging, which often indicates strong future growth potential.

For Zoetis (ZTS), the payout ratio from 2013 to 2023 has remained significantly below the 65% threshold, with an average payout ratio of approximately 19.80%. For instance, in 2013, the payout ratio was 19.36%, and it gradually increased to approximately 29.51% in 2023. This trend reflects a conservative dividend policy, which is generally a positive indicator for long-term investors, as it implies Zoetis is retaining a substantial portion of its earnings for growth initiatives, acquisitions, or other strategic investments. This conservative approach bodes well for future growth prospects, stability, and potential capital appreciation.

Dividends Well Covered by Earnings?

Dividend cover is a key metric for dividend sustainability, calculated as Earnings per Share (EPS) divided by Dividend per Share. A higher value indicates better coverage and more sustainability.

Analyzing the coverage ratio from 2013 to 2023, reflecting the relationship of EPS to Dividend per Share for Zoetis (ZTS): the ratio fluctuates from approximately 0.19 in 2013 to around 0.3 in 2023. This indicates that EPS has been consistently covering more than the dividend payouts, signifying good coverage. Strong rising EPS in recent years, scaling up to 5.08 in 2023, underwrites growing dividends, enhancing Zoetis' dividend sustainability. Overall, this trend is positive, reflecting prudent financial management and raising confidence in dividend reliability. The consistent upward trend in EPS reinforces Zoetis' potential for future dividend and business stability.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow is a critical measure because it indicates how comfortably a company can pay dividends to its shareholders from its generated cash. Strong coverage is typically viewed as a sign of financial health and sustainability of dividends.

Zoetis's free cash flow has generally been on an upward trajectory, starting from a negative value in 2009 and reaching approximately $1.62 billion in 2023. During the same period, the dividend payout amount also increased substantially from $101 million in 2009 to $692 million in 2023. While the ratio of cash flow coverage for dividends was negative in 2009, it has mostly stayed below 1 over the examined years, indicating that the dividend coverage by free cash flow is relatively tight in many years. In 2022 and 2023, the ratios were 0.4607 and 0.4269, respectively. This suggests that while covering a good portion of the dividends, there is margin of caution, indicating that a substantial downturn in free cash flow can challenge Zoetis's ability to sustain its current dividend payout levels. For robust dividend sustainability, a ratio above 2 is generally considered ideal.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments over the past 20 years is crucial for income-seeking investors as it indicates reliable returns and financial health.

Zoetis (ZTS) shows a dividend history starting from 2013 with an initial payout of 0.195 per share. Over the years, dividends have generally increased, reaching 1.5 per share in 2023. Notably, there was a drop from 1.3196 in 2021 to 1.3 in 2022. However, no year experienced a drop greater than 20%. This trend signifies stability and reliability in the dividend policy of Zoetis, which is favorable for long-term investors seeking consistent income.

Dividends Paid for Over 25 Years?

The criterion of paying dividends for over 25 years is important because it indicates a company's long-term financial health and commitment to returning value to shareholders.

From the provided data, Zoetis (ZTS) has only been paying dividends since 2013. The dividend per share started at $0.195 in 2013 and has generally trended upwards, reaching $1.5 in 2023. This represents approximately a 669.23% increase over a decade. However, the company has only a 10-year history of paying dividends, which falls short of the 25-year benchmark. While this upwards trend is definitely positive, it does not yet meet the long-term stability criterion of 25 years. Therefore, this trend is good for the company's recent financial performance but does not satisfy the specific criterion of dividends paid over 25 years.

Reliable Stock Repurchases Over the Past 20 Years?

Explain reliable stock repurchases and why it is important to consider for Zoetis (ZTS).

The number of shares for Zoetis (ZTS) has been decreasing steadily since 2015. The average repurchase rate over the last 20 years has been an impressive -0.5735, signaling a consistent trend in reducing the number of outstanding shares. This activity is generally a positive indicator for shareholders as it often demonstrates the company’s confidence in its own future performance and can result in increased earnings per share (EPS). For Zoetis, the reduction of 38,828,000 shares from 2015 to 2023 aligns with reliable repurchase activity, thus indicating good financial health.