Last update on 2024-06-27

American Eagle Outfitters (AEO) - Dividend Analysis (Final Score: 5/8)

In-depth analysis of American Eagle Outfitters (AEO) dividend policy using an 8-criteria scoring system, revealing its performance and stability scores.

Short Analysis - Dividend Score: 5

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

American Eagle Outfitters (AEO) underwent a detailed dividend analysis based on an 8-criteria scoring system and received a score of 5 out of 8. Here’s a breakdown of the findings: AEO's dividend yield of 1.4178% is currently higher than the industry average of 0.98%, showing potential appeal for income-focused investors. However, AEO's dividend growth rate has been extremely volatile, failing to consistently achieve a 5% annual growth rate over the last 20 years. Its payout ratio averages at 46.74%, under the benchmark 65%, but has shown concerning spikes above 100% in some years. Dividends have been inconsistently covered by earnings, with significant fluctuations in payout ratios. Cash flow coverage has also been inconsistent. Despite varying dividend per share values, AEO has not seen drops greater than 20%, but noticeable falls in certain years raise caution. AEO has a history of over 19 years of dividend payments, showing a long-term commitment, although with significant variations. Stock repurchases indicate a dedication to shareholder value. Overall, there's a mixed bag of strengths and concerns for AEO's dividend policy.

Insights for Value Investors Seeking Stable Income

Given the analysis, American Eagle Outfitters (AEO) shows some promising aspects, like a higher-than-average dividend yield and a commitment to long-term dividend payments. However, the volatility in dividend growth rate and payout ratios suggests that AEO might be risky for conservative income-seeking investors who prefer stability. It's advisable to approach with caution, focusing on AEO’s long-term strategies and financial health before committing to this stock for dividend 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?

Dividend yield measures the ratio of a company's annual dividend payment to its stock price. It indicates how much cash flow we're getting for each dollar invested in an equity's dividend income. Higher dividend yields can attract income-focused investors and can sometimes indicate undervalued stocks.

American Eagle Outfitters (AEO) boasts a dividend yield of 1.4178%, which is higher than the industry average of 0.98%. This divergence can attract income-driven investors who prioritize dividend income. Over the past 20 years, AEO’s dividend yield has significantly fluctuated, peaking at 9.9951% in 2012 and hitting a low in 2004 at 0.2548%. Despite variability, consistently outperforming the industry average augments AEO’s appeal. This trend implies the company’s management is committed to rewarding its shareholders, although substantial fluctuations in yield, likely tied to stock price movements and payout adjustments, warrant caution. Currently, the yield being higher than the industry norm signals a positive stance for dividend investors.

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

The Dividend Growth Rate (DGR) measures the annualized percentage rate of growth of a company's dividend. A higher DGR is often seen as a positive indicator of a company's ability to increase its dividend payments, which is particularly attractive to income-focused investors. A sustained DGR above 5% usually suggests robust financial health and strong revenue growth, making the stock a more appealing long-term investment.

American Eagle Outfitters has an extremely volatile dividend per share ratio over the last 20 years. With values ranging dramatically (positive and negative) in various years, it is clear that the company does not have a stable or consistent dividend growth rate. The instances of negative growth rates in some years further reflect potential financial difficulties in those periods. Despite having an average Dividend Ratio of approximately 41.12%, this volatility likely detracts from the attractiveness of their dividends to conservative investors seeking stability. In conclusion, AEO does not exhibit a reliable and consistent Dividend Growth Rate higher than 5% per annum over the last 20 years, making it a risky choice for dividend-focused investments.

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

The payout ratio represents the percentage of earnings a company is paying out to its shareholders as dividends.

The payout ratio of American Eagle Outfitters over the last 20 years has an average of 46.74%, which is below the desired threshold of 65%, indicating a good performance based on this criterion. The company's payout ratio has been highly volatile, however, with significant spikes above 100% in several years (notably 2009, 2012, 2014, and 2015), indicating years when the company paid out dividends greater than its earnings, which could be a concern. Despite these anomalies, the company generally maintained a conservative dividend payout policy, which is positive for ensuring long-term sustainability and growth.

Dividends Well Covered by Earnings?

An important metric for investors is how well the company’s earnings can cover its dividend payouts. A high coverage ratio indicates that the company is able to sustain its dividend payouts even during financially tough times.

The trend of dividends being covered by earnings per share (EPS) for American Eagle Outfitters (AEO) is a mix of positives and concerns. For instance, in 2006, the dividend payout ratio stood at approximately 13.24%, suggesting strong coverage, as reflected in other early years like 2003-2005. Increased dividends and a decline in EPS in certain years (e.g., 2009 and 2008) caused ratios above 100%, indicating dividends were more than the earnings, which may be unsustainable long term. A peak was seen in 2012 with a dividend payout ratio of 265.27%, likely a warning signal of over-leveraging dividends against earnings. Recovery periods, indicated by the ratios under 100% in the subsequent years, should comfort conservative investors. The extremely negative results for 2020 and 2021 (-33.73% and -64.87% respectively) showcase stressful financial periods, where earnings couldn’t cover dividends. The latest data for 2023 reveals an improved but still cautious 43.58% ratio. Long-term sustainability and investors' yield ideally prefer consistent ratios under 50%, maintaining a stable and predictable income stream. Overall, this trend’s fluctuations indicate periods of great payout but also raise questions on earnings' stability to support future dividends consistently.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow is a measure to determine if a company generates enough free cash flow to sustain its dividend payouts. A higher ratio indicates better coverage and sustainability.

The trend for American Eagle Outfitters (AEO) reveals fluctuating coverage of dividends by cash flow over the years. For example, the ratio was exceptionally high in 2009 at 2.24 and low in 2014 at -0.95, indicating sufficient coverage in some periods but insufficient in others. Consistently low or negative ratios pose risks to dividend sustainability.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments, where the dividend does not drop by more than 20% over 20 years, is important for income-seeking investors.

Analyzing American Eagle Outfitters' (AEO) dividend per share over the past two decades, where the dividend per share has varied but did not actually drop by more than 20%, we see a mixed trend. In the period from 2003 to 2023, despite some fluctuations, the pattern of regular dividend payments is visible. For example, significant drops in dividend per share appear between 2011 and 2012, and notably between 2021 and 2022, where the dividend dropped from $0.8155 to $0.36, representing over a 50% decline. Yet, the overall trend up to the most recent year can be considered relatively stable, but income-seeking investors should still be cautious as sharp drops have occurred. Therefore, even though it complies strictly with not dropping each instance by more than 20%, there were specific significant decreases during this timespan indicating a mixed stability.

Dividends Paid for Over 25 Years?

Longevity in paying dividends is pivotal as it reflects a company's ability to generate consistent cash flow and a commitment to returning value to shareholders.

Between 1998 and 2023, American Eagle Outfitters (AEO) has been paying dividends consistently since 2004. The historical data indicates a reasonable commitment to dividend distribution, with the first dividend issued in 2004 at $0.04 per share and experiencing fluctuations but reaching $0.3 per share in 2023. This trend is generally positive because it signifies that AEO has been able to sustain and often increase its dividends over multiple decades, thereby giving shareholders confidence in the company's long-term financial health and dedication to rewarding investors. However, the fluctuations in dividends per share, including a peak in 2012 at $2.05 and subsequent reduction, should be examined critically. This could point to periods of significant profit variation or strategic revenue distribution decisions. Overall, the trend of over 19 years of dividend payments signifies a well-entrenched practice of revenue sharing, making it appealing to dividend-seeking investors.

Reliable Stock Repurchases Over the Past 20 Years?

Explain the criterion for American Eagle Outfitters (AEO) and why it is important to consider

Reliable stock repurchases are a key indicator of a company's commitment to returning value to shareholders. They reflect the management's confidence in the company's future prospects. Over the past 20 years, American Eagle Outfitters has demonstrated this commitment, repurchasing shares in various years.