Last update on 2024-06-27

Albemarle (ALB) - Dividend Analysis (Final Score: 6/8)

Analyse on Albemarle (ALB) dividend policy, assessing its stability and performance through an 8-criteria scoring system. Final Score: 6/8.

Short Analysis - Dividend Score: 6

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

The dividend analysis for Albemarle (ALB) reviewed eight criteria and resulted in a score of 6/8. Although the company has had a strong history of paying dividends for 25 years, its dividend yield is lower than the industry average. The dividend growth rate over the past 20 years is negative at -6.27%, showing inconsistency. The average payout ratio is crucial to evaluate the sustainability and is discussed to signify that the company retains earnings for growth. EPS coverage for dividends shows many periods below ideal, suggesting potential instability. While dividends have been stable and consistently increasing, the ability to cover dividends from cash flow is erratic. The company has demonstrated an effort in stock repurchases for shareholder value, although inconsistencies exist. Overall, ALB has had a mixed but somewhat positive performance regarding dividends.

Insights for Value Investors Seeking Stable Income

Albemarle has prudently managed dividends and has a long track record of payments. However, the low dividend yield and negative growth rate over 20 years are concerning. The sustainability of dividends based on earnings and cash flow cover raises red flags. Therefore, while Albemarle may be a stable investment for those focusing on long-term growth, income-focused investors might want to look elsewhere if they prioritize high and consistent dividend yields. It's worth considering as part of a diversified portfolio, with careful monitoring of future earnings and dividend coverage.

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?

Understanding the dividend yield is crucial for investors as it indicates how much a company pays out in dividends each year relative to its stock price.

Albemarle's (ALB) current dividend yield of 1.1074% is notably lower than the industry average of 2.37%. Reviewing the past 20 years, Albemarle's dividend yield peaked at 2.1525% in 2008, while the lowest was in 2021 at 0.6673%. Even though the company's dividend per share has consistently increased from $0.2825 in 2003 to $1.60 in 2023, the stock price appreciation - from $14.985 in 2003 to $144.48 in 2023 - means the yield has not necessarily kept pace. This lower yield could be interpreted as Albemarle's focus on reinvestment and stock price growth rather than income returns. However, it may also signal that the stock price is currently high relative to its dividend payout, making it potentially less attractive for income-focused investors.

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

Criterion 1.1 evaluates the growth rate of dividends over an extended period, usually around 20 years, to determine the consistency and reliability of the company in returning value to shareholders. A growth rate higher than 5% is generally considered healthy and indicates that the company is capable of increasing shareholder wealth over time.

Based on the provided values for Albemarle's dividend per share ratio, we see significant variations over the 20-year period. The average dividend ratio is approximately 9.04%. However, to interpret the dividend growth rate accurately, we should calculate the Compound Annual Growth Rate (CAGR) from 2003 to 2023. Using the given dividendPerShareRatio, the formula for CAGR is: CAGR = (Ending Value/Beginning Value)^(1/n) - 1 Where; Ending Value = 1.2658 (for 2023), Beginning Value = 4.6296 (for 2003), and n = 20 years. CAGR = (1.2658/4.6296)^(1/20) - 1 CAGR ≈ -6.27% The resulting CAGR is -6.27%, indicating a declining dividend growth rate over the last 20 years. Given that a healthy growth rate is above 5%, this is a negative trend for Albemarle. The volatility seen in the year-to-year ratios suggests inconsistencies in dividend policies. Including a peak of 21.74 in 2007 and a valley of 1.2658 in 2023, these fluctuations are not conducive to stable, progressive dividend growth.

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

Explain the criterion for Albemarle (ALB) and why it is important to consider

The criterion of having an average payout ratio lower than 65% over the last 20 years is critical for evaluating a company's dividend sustainability. A lower payout ratio indicates that the company retains a significant portion of its earnings, which it can reinvest for growth, pay down debt, or use as a buffer in difficult times. An average payout ratio below 65% generally signifies that the firm is not over-distributing profits to shareholders, which could otherwise strain financial stability.

Dividends Well Covered by Earnings?

The coverage ratio of dividends by earnings per share (EPS) indicates the sustainability of dividend payouts. A ratio above 1 is ideal, suggesting earnings can fully support dividend payments.

The EPS data for Albemarle shows fluctuations over the years, reaching a peak of $22.97 in 2022. However, the dividend per share has shown a steady increase, reaching $1.6 in 2023. The coverage ratio results reveal inconsistencies, with many years showing ratios below 1, indicating that dividends are not sustainably covered by earnings. Particularly, in 2022, the coverage was extremely low at 0.068. This sharp drop raises concerns about the sustainability of the dividends and suggests that, while dividends have been steadily increasing, they may not always be supported by the company's earnings. Stakeholders should be cautious and monitor future earnings closely.

Dividends Well Covered by Cash Flow?

Dividends covered by cash flow is a crucial indicator for investors. It measures how well a company can afford to pay dividends to its shareholders from its free cash flow. This metric is essential because it shows the sustainability of dividends, ensuring that they are not being paid out from borrowed funds.

Analyzing Albemarle's coverage of dividends by free cash flow over the years reveals a fluctuating trend with some concerning periods. Generally, a ratio above 1 indicates good coverage: - Early Years (2003-2014): The dividend coverage ratio is below 1, with a few years approaching 0.3. This indicates weak coverage but not alarming as it sits between 0.1-0.3. - 2015: The coverage ratio of 0.896 shows improved coverage due to a spike in free cash flow. This suggests a stronger ability to cover dividends. - 2017-2021: Negative coverage ratios are concerning. In 2017, free cash flow crashed, making it inadequate to support dividend payouts. Continued negative ratios imply dividends were funded through other means, including debt or reserves. - Positive Exceptions: 2022's ratio at 0.285 indicates a short term recovery, showing some improvement but still below ideal sustainability. Given the erratic nature and notably poor coverage in recent years, Albemarle's ability to cover its dividends from cash flow is unsteady, raising questions on long-term dividend sustainability.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments, where the dividend per share did not drop by more than 20%, is crucial for income investors as it demonstrates reliability and consistency.

Evaluating Albemarle's dividend per share over the past 20 years, we can observe continuous growth from $0.2825 in 2003 to $1.60 in 2023. This represents a significant and consistent increase. Over these two decades, there weren't any years where the dividend per share dropped by more than 20%. This exhibits a stable trend, attracting income-seeking investors who look for steady and reliable income streams. Therefore, this trend can be considered very positive for Albemarle.

Dividends Paid for Over 25 Years?

Dividends paid for over 25 years is a key criterion that indicates the company's stability, consistency, and commitment to returning value to shareholders. It helps investors gauge the reliability of the dividend payout and the financial health of the company over a long period.

Based on the data, Albemarle has paid dividends consistently for 25 years. Starting from 1998 with a dividend of $0.38 per share, and reaching $1.60 per share in 2023, the company has demonstrated its commitment to its shareholders. The trend is positive, signifying the company's growth and financial health. Such a consistent dividend history is reassuring for dividend-seeking investors. This strong track record of paying and increasing dividends over time reflects a stable and mature business, which is a positive signal for potential and current investors.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases are a sign that a company is committed to returning value to its shareholders. Share repurchases reduce the number of shares outstanding, which can increase earnings per share (EPS) and drive up the stock price over time.

Evaluating the data on share numbers over the past 20 years, Albemarle has demonstrated a reliable pattern of stock repurchases in several years: 2008, 2009, 2011, 2012, 2013, 2014, 2017, 2018, and 2019. This trend indicates a focused effort to provide shareholder value during those periods. The most significant decreases in share count over the years can be noted in 2008 and 2013, when the share count dropped by approximately 4.81% and 6.61% respectively, compared to the previous years. Over the last 20 years, the average number of shares repurchased annually is 2.0722%, which is relatively modest but consistent enough to suggest a long-term commitment to boosting shareholder value. However, the data also reveal several years where the share count increased, such as in 2015, 2020, and the recent upward trends in 2021 to 2023. This inconsistency could imply that while Albemarle has periods of active repurchasing, other factors might occasionally prompt them to issue more shares instead. Overall, the trend has been positive for investors, but the inconsistency needs to be carefully monitored. A more regular repurchase rate could strengthen investor confidence even further.