Last update on 2024-06-27

Avery Dennison (AVY) - Dividend Analysis (Final Score: 6/8)

Avery Dennison (AVY) dividend analysis using an 8-criteria scoring system, final score: 6/8. Detailed assessment of dividend yield, growth rate, and payout ratio.

Short Analysis - Dividend Score: 6

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

The analysis evaluates Avery Dennison's (AVY) dividend performance and stability using eight criteria. Avery Dennison has a lower dividend yield than the industry average (1.573% vs. 2.21%). Its average annual dividend growth rate is slightly above 5%, indicating variability and some periods of instability. The payout ratio, under 65%, signifies sustainability, with an average of 45.38% over the past two decades. While dividends are mostly covered by earnings, recently lower ratios hint at reduced coverage in recent years. Coverage by cash flow has been weak since 2008 but shows some recovery lately. Despite a significant drop during the 2008 financial crisis, dividends have grown consistently since 2010. Avery Dennison has a long history of paying dividends and a reliable stock repurchase program. Overall, Avery Dennison demonstrates a relatively stable but not entirely risk-free dividend profile, suitable for long-term investors but with some caution.

Insights for Value Investors Seeking Stable Income

Avery Dennison (AVY) presents a stable dividend option, though it comes with some caveats. Its long history of dividend payments, sustainable payout ratio, and consistent stock repurchasing make it attractive for long-term, income-focused investors. However, lower recent coverage by earnings and cash flow, along with a dividend yield below the industry average, are points of concern. Consider this stock if you're looking for gradual, long-term gains and have a higher tolerance for some volatility and risk in dividend payments. It might also be wise to keep an eye on market trends and company performance metrics regularly.

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 is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price. This is important because it indicates the return on investment for dividend income.

Avery Dennison's dividend yield of 1.573% is currently lower than the industry average of 2.21%. Over the past 20 years, the company's yield has fluctuated, peaking at 5.0107% in 2008, while the lowest was 1.2282% in 2021. While the industry's average yield has also seen variations, it has generally been above Avery Dennison's yield. This lower yield can imply that either the company’s stock price has appreciated significantly, or it has not increased its dividend payouts proportionately. Given the steadily rising stock price, it suggests more about the stock price appreciation. Investors looking for higher dividend income might find better opportunities elsewhere, although those who have held the stock might have benefited from capital gains.

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

The Dividend Growth Rate measures the percentage increase in dividends paid by a company over time. A growth rate higher than 5% for the last 20 years is considered a positive indicator for income-focused investors.

Over the past 20 years, Avery Dennison's (AVY) dividend growth rate has exhibited significant variability across different years. With values ranging from a remarkable -34.4262% in 2010 to an impressive 25% in 2011, it's clear that there have been periods of both healthy growth and decline. The average dividend ratio stands at 5.0926%, which is only slightly above the 5% threshold. Hence, while Avery Dennison has managed to maintain an average growth rate that aligns with the investment community's expectations, the considerable fluctuation suggests periods of instability. Income-focused investors should recognize these fluctuations when evaluating AVY for long-term dividend stability. It's worth noting that the trend is slightly positive, but the variability might be a point of concern.

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

Average payout ratio being lower than 65% over the last 20 years

A payout ratio under 65% is generally considered sustainable, indicating that Avery Dennison (AVY) is in a strong financial position to maintain its dividend payouts. The 20-year average is 45.38%, which is well below the 65% threshold. Notably, only in 2005 did AVY exceed the threshold with a payout ratio of 67.92%. The overall trend demonstrates prudent financial management, ensuring that earnings are sufficiently covering dividends. Thus, this trend is excellent for investors seeking long-term, reliable dividends.

Dividends Well Covered by Earnings?

This criterion examines the ratio of a company's earnings per share (EPS) to its dividend per share (DPS). A higher ratio implies that the company generates sufficient earnings to comfortably cover its dividend payouts. This is crucial for dividend sustainability and indicates financial health.

Analyzing Avery Dennison’s EPS and DPS from 2003 to 2023, we notice that the dividends are largely well-covered by earnings, maintaining a ratio greater than 0.5 in most years. However, notable exceptions occurred in 2009 and a slight volatility is observed since 2018 ranging between 0.29 and 0.62. Especially in 2021 and 2022, the ratio of EPS to DPS decreased to approximately 0.29-0.31, reflecting a relatively lower coverage in recent years. Despite this, the overall long-term trend indicates that Avery Dennison has mostly ensured that its earnings sufficiently cover its dividends, suggesting a relatively stable and sustainable dividend policy over the two decades. This is critical for long-term investors seeking consistent dividend payouts.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow are important because they indicate that the company generates enough cash to comfortably pay its dividends, increasing dividend reliability and reducing risk.

Over the years, Avery Dennison's dividend coverage by free cash flow has fluctuated significantly. For instance, the early 2000s saw relatively stronger coverage ratios such as 1.2 in 2003 but witnessed a substantial drop to 0.486 in 2004. The ratios further decrease over the period, evidenced by values like 0.2346 in 2010 and 0.2894 in 2009. The company's ability to cover dividends with free cash flow has been generally weak, especially after 2008, highlighting potential risks in dividend sustainability.However, recent years show some recovery, particularly in 2018 with 0.869 and even more so in 2020 with a coverage ratio of 0.369. Although the trend is seeing some positive momentum, low figures close to or below 0.5 suggest higher risk. Overall, despite occasional improvements, the trend suggests that Avery Dennison has struggled to consistently cover dividends with free cash flow, which is a concerning sign for dividend investors.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments is crucial as it indicates the company's consistent profitability and dedication to returning capital to shareholders.

Reviewing Avery Dennison's (AVY) dividend per share over the last 20 years, it's evident that the company has maintained a relatively stable dividend history except for the period between 2007 and 2010. Specifically, there was a significant drop in dividends during the financial crisis from 2008 to 2010, where the dividend per share dropped from $1.64 in 2008 to $0.80 in 2010 - a reduction of over 51%. However, since 2010, Avery Dennison has shown a strong recovery and consistent growth in its dividend payouts, increasing from $0.80 in 2010 to $3.18 in 2023. This trend indicates a robust recovery and commitment to rewarding shareholders despite past financial downturns, aligning well with income-seeking investors' priorities for stable and growing dividends over the long term.

Dividends Paid for Over 25 Years?

Analysis of dividends paid over a period of 25 years, evaluating the company's consistency and growth in dividend payouts, as well as its ability to generate shareholder value.

Avery Dennison (AVY) has demonstrated remarkable consistency in its dividend payouts over the last 25 years, with dividends per share growing from $0.87 in 1998 to $3.18 in 2023. The company's commitment to returning value to its shareholders is evident through its continuous and increasing dividend payments. This trend is a positive indicator of the company's financial health and shareholder-friendly approach. Such a long history of dividend payment also suggests that AVY has a robust and stable business model capable of generating steady cash flows. Importantly, the steady increment, barring the slight declines in 2009 and 2010 probably due to the global financial crisis, underpins a fundamentally strong and resilient business. Overall, this trend is favorable for income-focused investors as it highlights AVY's reliability in dividend payouts.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases signify the company's ongoing commitment to returning value to shareholders. A consistent trend in repurchasing shares can indicate strong cash flow and a positive outlook.

Avery Dennison has shown a clearly reliable pattern in stock repurchasing over the past 20 years, with consistent buybacks in key periods. The years of notable repurchases include 2006, 2007, 2008, and several years over the last decade including 2012 to 2023. The reduction of shares from 100 million in 2003 to around 80.7 million by 2023 signifies a strategic buyback program. This trend is generally positive, reflecting the company's robust cash generation and its favorable stance on enhancing shareholder value. The average repurchase rate of -1.0387 underlines a strong commitment to reducing share count over this long period.