Last update on 2024-06-27

Basf (BAS.DE) - Dividend Analysis (Final Score: 3/8)

Uncover the performance and stability of BASF (BAS.DE) with our thorough 8-criteria dividend analysis, yielding a 3/8 score for 2023.

Short Analysis - Dividend Score: 3

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

BASF (BAS.DE) has a mixed performance when it comes to its dividend policy. Their dividend yield is higher than the industry average, and they have a solid average dividend growth rate over the past 20 years. However, the payout ratio is above the recommended threshold, raising concerns about sustainability. Their dividends are not consistently covered by earnings, although they are generally well covered by cash flow. There's also a notable drop in dividends in 2020, breaching the stability criterion, though they've paid dividends for almost 25 years. Their stock repurchase trend is overall positive, indicating a strategic approach by management.

Insights for Value Investors Seeking Stable Income

BASF's dividend policy shows some strengths, but there are significant concerns, especially with the high payout ratio and inconsistent dividend coverage by earnings. It might be worth looking into their overall financial health and future earnings potential before investing, especially if you're an income-focused investor. Only consider investing if you're comfortable with potential fluctuations in dividend payouts.

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 and its significance in assessing a company's financial health.

BASF's dividend yield of 6.97% in 2023 is substantially higher than the industry average of 4.85%. Historically, BASF's yields have fluctuated, peaking exceptionally during periods like 2008 and 2020. A high yield above the industry average suggests the company is distributing a generous portion of its profits back to shareholders, potentially indicating a stable and mature company. However, it's crucial to consider other factors such as dividend sustainability and overall financial health to ensure this trend is beneficial in the long term.

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

Dividend Growth Rate measures how much a company’s dividend payments have increased over time, indicating financial health and company growth.

BASF's dividend growth rate over the past 20 years has an average of 9.11%, which exceeds the 5% benchmark. This suggests a healthy and robust dividend strategy by BASF, although some variances like the 0% and negative growth in some years may indicate periods of financial strain or strategic reinvestment. Overall, the trend is positive.

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

Average payout ratio refers to the percentage of earnings distributed to shareholders in the form of dividends.

The average payout ratio for BASF (BAS.DE) over the last 20 years stands at approximately 72.72%, which exceeds the 65% threshold that is generally considered a benchmark for sustainability. This trend shows that BASF has been distributing a larger portion of its earnings as dividends. While this can be appealing to income-focused investors, it raises concerns about BASF's ability to reinvest in growth opportunities effectively. More specifically, in years like 2023 and 2020, where payout ratios were exceedingly high, this could signal periods of financial stress or lower earnings. A payout ratio significantly above 100%, as seen in several years, indicates that BASF had to dip into its reserves or borrow funds to maintain its dividend, an unsustainable practice in the long term. This trend is considered negative for the criterion of maintaining an average payout ratio below 65%.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings

Analyzing BASF's earning per share (EPS) and dividend per share (DPS) from 2003 to 2023, it becomes apparent that the stability of the company's dividend policy is inconsistent. The ratio of EPS to DPS, also known as dividend coverage ratio, is a measure of how easily a company can pay dividends out of its net income. Ideally, a ratio above 1 indicates good coverage, ensuring that dividends are being paid out of earnings rather than debt or capital reserves. Looking at the data, BASF has fluctuated significantly in this regard. Only a few years (2003, 2008, 2009, and 2023) show the ratio above 1, suggesting that dividends were well covered by earnings. During other years, the ratio is often well below 1 – especially in years like 2020 and 2023 where the company reported negative EPS, indicating that the dividends were not covered by the earnings and could be unsustainable long term unless substantial reserves or debt financing are in place. This trend is concerning, reflecting potential future challenges in maintaining consistent dividend payouts.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow indicates whether a company generates enough cash flow to support its dividend payments without straining its finances.

Analyzing BASF's free cash flow (FCF) and dividend payout amount over the period from 2003 to 2023, the trends display a notable improvement in the ratio of dividends covered by cash flow. In the earlier years, such as 2005 (-2.75) and 2006 (0.29), dividends were not well-covered by FCF, indicating potential financial strain. The negative value in 2005 is particularly concerning as it shows that the company did not generate enough cash flow, likely requiring external financing to cover the dividends. However, from 2010 onwards, we observe a strengthening trend with the ratio stabilizing above 0.70. The peak in 2014 with a ratio of 1.49 indicates robust coverage where FCF was more than sufficient to cover dividend payouts. Although there were fluctuations, the recent years' ratios (2022 at 0.97 and 2023 at 1.14) suggest that BASF is in a healthier financial position with dividends well-covered by cash flow. Hence, the overall trend is positive, signaling good financial management.

Stable Dividends Since the Company Began Paying Dividends?

Stable Dividends Over the Past 20 Years refers to the consistency of dividend payments. It ensures that the company maintains or grows its dividend per share and does not cut it by more than a specific margin, in this case, 20%, which is crucial for income-focused investors.

Evaluating the dividend per share data for BAS.DE (Basf) over the past 20 years, we notice that there were fluctuations, particularly a notable drop in 2020, where the dividend was reduced from 6.6 in 2019 to 3.3 in 2021, representing a more than 50% drop. This drop breaches the stability criterion set for considering only up to 20% drop, which is a red flag for income-seeking investors. Nonetheless, aside from this period, BAS.DE had consistent dividend payments and demonstrated resilience, especially given the adverse global economic impacts during 2020.

Dividends Paid for Over 25 Years?

dividends paid for over 25 years

Based on the provided data, BASF (BAS.DE) has paid dividends consistently for the last 24 years since 2000, missing only in 1999. In absolute terms, dividends have grown from 1.13 per share in 2000 to 3.4 per share in 2023. Despite some fluctuations, like the sharp increase to 6.6 in 2020, which seems an anomaly possibly due to special dividends or other factors, the general trend shows resiliency and a commitment to returning value to shareholders. A minor decline occurred during the 2008 financial crisis, but growth resumed thereafter. The consistent dividend payout and growth signal good financial health, stability, and a shareholder-friendly management approach.

Reliable Stock Repurchases Over the Past 20 Years?

Assess whether BASF has consistently repurchased shares over two decades. Stock repurchases can signal confidence.

BASF has demonstrated a pattern of stock repurchases, specifically in years such as 2004, 2005, 2006, 2007, 2008, 2009, 2012, 2016, 2017, 2019, 2022, and 2023. Over the last 20 years, they have reduced their outstanding shares from 1,126,000,000 in 2003 to 892,641,000 in 2023. An average reduction of -1.1403% annually indicates a strategic approach toward enhancing shareholder value. This trend is generally positive as it showcases management's commitment to returning capital to shareholders, bolstering EPS (Earnings Per Share), and signaling financial health and confidence in the company’s future.