Last update on 2024-06-27

Adidas (ADS.DE) - Dividend Analysis (Final Score: 5/8)

Discover Adidas's (ADS.DE) dividend analysis with a 5/8 score, covering yield, growth rate, payout ratio, and consistency over 20 years.

Short Analysis - Dividend Score: 5

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

The dividend analysis for Adidas (ADS.DE) uses an 8-criteria scoring system and gives the company a score of 5 out of 8. Here's a breakdown: 1. **Dividend Yield:** Adidas has a current dividend yield of 0.3801%, significantly lower than the industry average of 1.11%. Historically, the yield has been volatile. 2. **Dividend Growth Rate:** Over 20 years, Adidas' average dividend growth rate is above 5%, but it's inconsistent with steep increases and drops. 3. **Payout Ratio:** The 20-year average payout ratio is around 39.60%, which is below the 65% threshold, indicating good reinvestment in growth. 4. **Earnings Coverage:** Adidas has fluctuating dividend coverage ratios, with some years showing strong coverage and others, like 2023, showing negative coverage. 5. **Cash Flow Coverage:** The ability to sustain dividends from free cash flow is inconsistent, especially in recent years. 6. **Dividend Stability:** Dividends have significantly varied, dropping more than 20% in some years, which might concern income-seeking investors. 7. **25 Years of Dividends:** Adidas has paid dividends for 24 years, showing a strong commitment to shareholders despite reductions in challenging times. 8. **Stock Repurchases:** Consistent stock repurchases suggest confidence in the company's valuation and strength.

Insights for Value Investors Seeking Stable Income

Adidas (ADS.DE) has shown some strengths such as a sound payout ratio, commitment to paying dividends for 24 years, and consistent stock repurchases. However, its low and volatile dividend yield, inconsistent dividend growth, and fluctuating coverage from both earnings and cash flow are areas of concern. If you are an investor prioritizing stable and high dividends, you might want to consider more stable alternatives. However, if you believe in Adidas' long-term potential and are okay with some volatility, it might be worth considering, especially for capital appreciation rather than immediate income.

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 measures the annual dividend payment divided by the stock's price, expressed as a percentage. It assesses the income generated by holding the stock.

Regarding the dividend yield, Adidas (ADS.DE) has a rate of 0.3801%, which is significantly lower than the industry average of 1.11%. Historically, Adidas' dividend yield has been volatile over the last 20 years, ranging from a high of 4.4287% in 2003 to the current low of 0.3801% in 2023. Notably, the company's stock price has also displayed significant fluctuations, and its dividend yield has tended to diminish during periods of stock price appreciation. While a growing stock price is good news, the current subpar dividend yield indicates that the company's payouts have not kept pace with its stock price growth, offering less immediate income for investors. Therefore, the present dividend yield trend is unfavorable for income-focused investors.

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 over a specified period of time. A higher Dividend Growth Rate signals a strong financial health and a commitment to returning value to shareholders. It reflects the company’s ability to generate consistent earnings and cash flow. For Adidas, it's important as it would suggest the company's stable financial performance and growth in shareholder value.

The data provided indicates the dividend per share ratio fluctuating significantly over the last 20 years for Adidas, with years showing steep increases such as 128.5711% in 2011 and 160% in 2018, and drastic decreases, for example, -67.6923% in 2007 and -78.7879% in 2023. The average dividend ratio over this period stands at 11.42%. Despite the average being above 5%, the volatility includes multiple years of no dividends or substantial drops, indicating instability. This trend suggests inconsistencies in earnings and dividend policies, which may concern long-term investors who seek reliable and predictable dividend growth.

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

The Payout Ratio indicates the proportion of earnings a company pays to its shareholders in the form of dividends. A lower ratio typically suggests the company retains more earnings for growth and expansion.

Adidas has maintained an average payout ratio of approximately 39.60% over the past 20 years, which is well below the 65% threshold. This is a good sign because it means the company is retaining a significant portion of its earnings for reinvestment and growth. Most of the years, the payout ratios were well below 65%, except for a few outliers such as in 2020, 2022, and the negative value in 2023, indicating occasional volatility. Overall, the trend is favorable as it aligns with prudent fiscal management and sustainable dividend practices.

Dividends Well Covered by Earnings?

Dividends are well covered by earnings is crucial because it indicates that the company generates enough profit to sustain its dividend payouts. This provides a sense of reliability and sustainability to the shareholders, knowing that they will continue to receive dividends without the company jeopardizing its financial health.

Analyzing the data for Adidas (ADS.DE), it is evident that the trend of dividends being well-covered by earnings exhibits significant fluctuations. For instance, the dividend coverage ratio in 2003 stood at approximately 66.99%, but it plummeted significantly in subsequent years, hitting a worrying low of around 12.91% in 2010, although briefly surging to 173.92% in 2020. One notable observation is the drastic decline in 2023 where the ratio turned negative (-166.63%), indicating that Adidas incurred losses hence is not able to cover dividends from its earnings. Such variability suggests an inconsistency in the company's ability to sustain dividend payments purely from earnings, implying potential risks for investors reliant on dividends as a steady income. Its failure to consistently maintain a healthy coverage ratio can be seen as a bad trend for this criterion.

Dividends Well Covered by Cash Flow?

This criterion assesses whether a company generates sufficient free cash flow to cover its dividend payments. It reflects the sustainability of dividend payouts and the company's financial health.

Adidas's data on free cash flow and dividend payout amounts from 2003 to 2023 shows a varied trend. For instance, in 2021, the dividend payout amount was €585 million, while the free cash flow was €2.525 billion, resulting in a coverage ratio of 0.23. This indicates a strong coverage. However, the negative coverage (-0.52) in 2022, driven by a -€1.174 billion free cash flow and a €610 million dividend payout, signals potential unsustainability. The varying coverage ratios highlight inconsistency, which could raise concerns for investors. Overall, it's critical for Adidas to stabilize its cash flows to ensure reliable dividend payments.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments, where the dividend per share did not drop by more than 20% over the past two decades, is crucial for income-seeking investors as it ensures a reliable income stream.

From 2003 to 2023, Adidas (ADS.DE) has shown variability in its dividend per share. Stability over drops in dividends is a sign of a company's consistent performance and financial health. Let's delve deeper: - The dividend per share has fluctuated significantly, with apparent volatility, especially in the years around the 2008 financial crisis and the recent COVID-19 pandemic. For instance, dividends fell from 1.3 in 2007 to 0.42 in 2008, a stark decrease. Similar volatility is seen in the pandemic year 2021 when the dividend dropped to 0.7 from 3.3 in 2020. - Despite some fluctuations, Adidas has managed to recover and increase its dividend payouts after significant drops, e.g., after the crisis in 2008 and the pandemic. - The fluctuations suggest that while there have been magnitudes where dividends have dropped by 20% or more year-over-year, Adidas shows resilience in recovering its dividend payouts. However, the sporadic substantial drops might concern conservative income-seeking investors who prioritize stability. Therefore, considering both the recovery ability and the drops, Adidas offers a mixed view on dividend stability over the past two decades.

Dividends Paid for Over 25 Years?

Dividends paid for over 25 years indicates a company's long-term commitment to sharing profits with its shareholders. It highlights financial stability and sustained profitability.

Adidas has paid dividends consistently over the past 24 years, starting in 2000. The payout was interrupted or reduced in challenging years, such as 2008 and 2023, reflecting macroeconomic impacts. However, consistent payouts in other years, progressively increasing amounts in recent years, and resilience during crises suggest a strong commitment to shareholders and robust financial health. This long-term trend is highly positive and aligns with investor confidence and company stability.

Reliable Stock Repurchases Over the Past 20 Years?

Explain the criterion for Adidas (ADS.DE) and why it is important to consider

Stock repurchases can be a significant indicator of a company's financial health and management's confidence in its future performance. By buying back shares, companies reduce the number of outstanding shares, which can effectively increase earnings per share (EPS) and potentially drive up the stock price. Furthermore, consistent stock repurchases can signal to investors that the company believes its shares are undervalued and can enhance shareholder value.