Last update on 2024-06-27

Aon (AON) - Dividend Analysis (Final Score: 8/8)

Aon (AON) earned a perfect score of 8/8 in our comprehensive 8-criteria dividend analysis, demonstrating exceptional stability and performance.

Short Analysis - Dividend Score: 8

We're running Aon (AON) 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?

This criterion looks at a company's dividend yield, which tells investors how much income they would earn from dividends as a percentage of their investment. A higher dividend yield compared to the industry average often suggests better income-generating potential from dividends.

Aon's current dividend yield of 0.8264%, while above the industry average of 0.63%, is relatively modest and reflects trend of declining yields. For instance, the yield was at 2.50% in 2003 and has been on a general downtrend since. In comparison to the industry, Aon's outperformance in terms of yield is good but is not indicative of robust yield growth. Their stock price has grown significantly from $23.94 in 2003 to $291.02 in 2023, which suggests price appreciation outpacing dividend growth.

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 payments over time, which is crucial in assessing the trajectory and sustainability of its payouts.

By examining Aon's data over the past 20 years, the Dividend Growth Rate has indeed exceeded 5%, averaging 6.1586%. This indicates a steady rise in dividends per share, a favorable trend for shareholders seeking long-term income growth from their investment. While there are fluctuations (e.g., 2016's 39.0071% growth versus 2017's -12.2449%), the overall upward trajectory enhances Aon's attractiveness as a stable dividend payer. Such a trend is good as it reflects management's confidence in profitable future performance and the ability to return capital to shareholders consistently.

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

The payout ratio measures the proportion of earnings paid out as dividends to shareholders. Keeping this ratio below 65% is crucial as it indicates that the company retains sufficient earnings for growth.

The average payout ratio for Aon over the last 20 years is approximately 25.23%, which is well below the threshold of 65%. This conservative payout strategy suggests that Aon has prioritized retaining earnings for reinvestment and growth, rather than distributing them all as dividends. Over the years, the highest payout ratio was 42.6913% in 2018, which is still comfortably below the 65% marker. The consistency in maintaining a lower payout ratio is a strong indicator of financial prudence and a stable dividend policy, making it a positive trend for long-term investors.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings.

Evaluating the dividend coverage ratio, we see that dividends per share (DPS) have been consistently covered by earnings per share (EPS) over the years. In 2023, the coverage ratio stood at approximately 0.533, well above the general threshold of 0.50, which suggests dividends are sustainable and well-covered by earnings. Over the years, the ratio has mostly stayed above the threshold, with a notable dip in 2021 (0.178) possibly influenced by the challenging macroeconomic conditions due to the COVID-19 pandemic. This trend indicates AON's commitment to rewarding shareholders while maintaining a sustainable payout policy year on year.

Dividends Well Covered by Cash Flow?

Expanding on how free cash flow is a critical indicator for dividend sustainability and overall financial health.

Analyzing the free cash flow (FCF) relative to dividend payout for Aon (AON), the company has consistently generated positive FCF, which suggests good liquidity and operational efficiency. However, since 2003, the FCF coverage ratio has shown a fluctuating trend, often hovering around 20%, except for years like 2009 and 2017 where the ratios were exceptionally high due to reduced FCF. The calculated FCF to dividend payout ratios underscore that Aon's dividends are generally well-covered by its cashflows, boasting a solid buffer. Although variations exist during economic downturns and company-specific events, the trend indicates a strong capability to maintain and grow dividends, which is positive. For instance, 2022 recorded a ratio of approximately 15.32% despite economic strains, showing favorable management. Nevertheless, investors must remain attentive to cyclical changes reflecting economic climates.

Stable Dividends Since the Company Began Paying Dividends?

The stability of dividends over time indicates the company's consistent performance and reliability, crucial for income-focused investors.

Over the past 20 years, Aon has shown a robust trend in its dividend payments. Starting in 2003 with a $0.60 dividend per share, the company maintained this level until 2012, where it incrementally increased to $0.624. Remarkably, by 2023, the dividend per share reached $2.405. Although there was a slight decrease in 2019 from $1.96 to $1.72, the overall progression indicates strong upward stability. This positive trend is valuable for income-seeking investors, demonstrating that Aon has generally increased its dividends and has not dropped by more than 20% at any point.

Dividends Paid for Over 25 Years?

Criterion 6 involves assessing whether Aon (AON) has paid dividends consistently for over 25 years. It is important because consistent dividend payments can indicate a company's financial stability and commitment to returning value to shareholders over the long term.

Examining the dividend data from 1998 to 2023, Aon (AON) has shown a pattern of consistent dividend payments each year for the past 26 years. Notably, AON's dividends per share increased from $0.7333 in 1998 to $2.405 in 2023, indicating a general trend of growth in dividend payouts. This consistency and growth in dividends suggest strong financial health and reliability, which is positive for investors seeking stable returns. However, there was a slight dip observed in some years (e.g., 2002 to 2004). Still, the overall trend shows resilience and a recovery in subsequent years. The results are favorable, as Aon meets this criterion, having paid dividends for over 25 years.

Reliable Stock Repurchases Over the Past 20 Years?

reliable stock repurchases over the past 20 years and why it is important to consider

The trend over the past 20 years indicates that AON has been consistently reducing its number of outstanding shares. For example, in 2003, AON had 317.8 million shares outstanding, which had decreased to 203.5 million by 2023. This reduction is equivalent to an average repurchase rate of -2.0899% per year. Notably, AON has performed share repurchases for 15 out of the 20 reported years. Reliable and consistent share buybacks are important as they often signal strong cash flow and management's confidence in the company's valuation. They also can increase earnings per share (EPS) as there are fewer shares outstanding, potentially leading to higher stock prices. Therefore, this trend suggests a positive outlook, reflecting both corporate confidence and competent capital management.