Last update on 2024-06-27

Air Liquide (AIL.DE) - Dividend Analysis (Final Score: 4/8)

Assessing Air Liquide's (AIL.DE) dividend performance and stability using an 8-criteria scoring system, resulting in a final score of 4/8.

Short Analysis - Dividend Score: 4

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

The evaluation of Air Liquide's (AIL.DE) dividend policy using an 8-criteria scoring system reveals a nuanced picture. Although the company's dividend yield of 1.6701% is much lower than the industry average of 4.85%, the stock price has significantly increased since 2008, indicating strong capital gains. The average annual dividend growth rate slightly exceeds the 5% threshold but shows high variability. The average payout ratio is worryingly high at 130.75%, though recent improvements point to better sustainability. Dividend coverage by earnings and cash flow presents mixed results, with recent years highlighting sustainability concerns. On a positive note, Air Liquide has maintained stable dividends without a drop of more than 20% and has been reliable in share buybacks. On the downside, the company lacks a 25-year continuous dividend history, only showing records from 2008 onward.

Insights for Value Investors Seeking Stable Income

Given the mixed results from the 8-criteria analysis, Air Liquide may not be an ideal choice for income-focused investors seeking high and stable dividends. The high payout ratio and recent low dividend coverage by earnings and cash flow are major concerns. However, the company's strong stock price growth and reliable share buybacks demonstrate potential for capital gains. Overall, Air Liquide could be considered for growth-oriented investors, but cautious evaluation is recommended before making an investment decision based solely on dividends.

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 represents the ratio of a company's annual dividend compared to its share price. It helps investors gauge how much return they might receive in the form of dividends.

Air Liquide (AIL.DE) has a current dividend yield of 1.6701%, which is significantly lower than the industry average of 4.85%. Historically, Air Liquide's dividend yield has fluctuated, peaking around 4.9539% in 2011. Despite a yielding decline over the years, the company's share price has steadily increased from €40.57 in 2008 to €160.58 in 2023, indicating robust stock price growth. This lower yield could signify that while the stock is appreciated for capital gains, it may not be the best choice for income-focused investors seeking high dividends.

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

Understand if the company has a sustained increase in dividends, showcasing financial health and commitment to returning capital to shareholders.

Analyzing the Dividend Ratio and the provided Average Dividend Ratio of 6.07%, Air Liquide displays a mixed dividend growth story. While the Average Dividend Ratio slightly exceeds 5%, which is typically seen as a positive indicator, individual years show high volatility with significant negative and positive spikes. Notable irregularities in 2011, 2012, 2013, and 2023 suggest instability. On average, the company meets the criterion, but investors should be cautious about the year-to-year variability affecting long-term reliability.

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

The Average Payout Ratio is the proportion of earnings paid to shareholders in dividends. A lower ratio, generally below 65%, is preferred as it indicates the company's ability to sustain or grow its dividend payout while retaining sufficient profit for business growth.

Air Liquide's average payout ratio over the last 20 years is approximately 130.75%, which is significantly higher than the preferred threshold of 65%. This trend is concerning, as payout ratios exceeding 100% mean that Air Liquide has been paying out more in dividends than its net income, potentially jeopardizing its financial health and ability to reinvest in growth opportunities. The data from 2008 to 2015, where the payout ratio consistently exceeds 190%, raises alarm. However, the downward trend from 2016 to 2023, with recent values around 45%, is a positive sign, indicating improvement in the company's dividend sustainability.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings. This criterion evaluates the ability of the company to sustain dividend payments from its net income. A higher coverage ratio indicates a safer and more sustainable dividend, while a lower ratio may raise concerns about the dividend's sustainability during lean financial periods.

From 2003 to 2017, Air Liquide's Dividend per Share (DPS) was generally well-covered by its Earnings per Share (EPS), with coverage ratios mostly above 1, indicating healthy earnings relative to dividends. For example, in 2011, EPS was 0.7677 and DPS was 2.9183, resulting in a very strong coverage of 3.8x. However, starting in 2018, a significant drop in the coverage ratio is observed. In 2018, the coverage plummeted to 0.46, implying that dividends exceeded earnings significantly, making the dividends vulnerable. This low coverage continued through 2023, ending at approximately 0.45, suggesting that the dividends are increasingly reliant on sources other than net income. Such persistent low coverage is a negative trend, as it poses risks to the company's ability to maintain its dividend payments in the long term.

Dividends Well Covered by Cash Flow?

Dividend coverage by cash flow indicates whether the company's free cash flow is sufficient to pay its dividends. A ratio above 1 means the company generates more free cash flow than it pays out in dividends, which is seen as a healthy and sustainable practice. Conversely, a ratio below 1 may indicate that the dividends are not well covered by free cash flow, raising sustainability concerns.

Analyzing Air Liquide's free cash flow and dividend payout from 2003 to 2023 brings to light some mixed trends. For instance, in 2008, the free cash flow of €384.6 million against a dividend payout of €550.8 million results in a coverage ratio of 1.43, suggesting ample coverage due to a one-time large free cash flow. However, in recent years, such as 2022 and 2023, the coverage ratios hover at 0.56, and 0.55 respectively, indicating a lack of sufficient free cash flow to cover dividends. Generally, a consistently low coverage ratio well below 1, like we see from 2017 onwards, raises sustainability concerns. Notably, there's a sharp surge in cash flow in certain years, such as 2017 and 2020, which improves the coverage temporarily. The overall fluctuating trend points to a less stable dividend sustainability for Air Liquide and the need for careful assessment by potential investors.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends refer to the company’s ability to maintain or gradually increase its dividend payout over an extended period. It reflects the company's financial health and is important for income-seeking investors who rely on dividend payments for a steady income stream. A drop of more than 20% in dividend payments could indicate financial instability.

Upon analyzing the dividend per share data of Air Liquide over the past 20 years, it is evident that the dividends did not witness a drop of more than 20% from one year to the next. For example, in 2009 and 2010, the dividends were stable at 1.3971. Although there was a decrease from 2021 (2.944) to 2022 (2.3967), this reduction was around 19%, which is still shy of the 20% mark. Overall, Air Liquide has demonstrated a stable dividend distribution pattern that aligns well with the income-seeking investors' goal of maintaining a reliable income stream. Therefore, the trend is positive for this criterion.

Dividends Paid for Over 25 Years?

This criterion examines whether a company has consistently paid dividends to its shareholders for over 25 years. It is important because it provides insight into the company’s stability, reliability, and shareholder friendliness.

Reviewing the dividend history of Air Liquide (AIL.DE), it appears that the firm has not consistently paid dividends for over 25 years. The data shows a record of dividends starting only from 2008, meaning Air Liquide has offered dividends for 15 years. The numbers reveal mostly consistent dividend payouts, with the dividends per share rising from 1.3971 in 2008 to 2.6818 in 2023. However, the lack of a 25-year history indicates a gap in demonstrating long-term reliability in returning value to its shareholders. This shorter dividend-paying history could be perceived as less favorable for investors seeking companies with proven long-term dividend commitments.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases refer to a company's consistent buying back of its shares, which can indicate confidence from management in the firm's future prospects and an effort to return value to shareholders.

The analysis shows that Air Liquide (AIL.DE) has had reliable stock repurchases in the years 2004, 2005, 2007, 2008, 2013, and 2019. Over the 20-year period, there is an average reduction in the number of shares by -3.2912%. This negative average suggests that the company effectively bought back shares, generally a positive trend as it indicates efforts to enhance shareholder value. However, it's also essential to consider the consistency and total proportion of shares repurchased over the years.