Last update on 2024-06-27

Bayer (BAYN.DE) - Dividend Analysis (Final Score: 4/8)

Comprehensive Bayer dividend analysis with an 8-criteria scoring and final score of 4/8. Examine yield, growth, payout ratio, coverage, stability, and repurchases.

Short Analysis - Dividend Score: 4

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

We analyzed Bayer’s dividend policy using an 8-criteria scoring system and it scored 4 out of 8. Here's a breakdown: Bayer's current dividend yield of 7.1365% is higher than the industry average but has risen mainly due to a sharp decline in stock price, which might indicate risk. The dividend growth rate over 20 years is around 9.7%, a good sign, but with high volatility. The average payout ratio is a conservative 49.78%, although it surged past 100% in some years. Dividends are covered by both earnings and cash flow, but with certain inconsistencies. Bayer has consistently paid dividends over the past 20 years but just missed the 25-year mark. Stable dividend payments have been maintained, with minor drops. However, Bayer has shown limited stock repurchase activity, which might be viewed negatively in terms of capital management strategies.

Insights for Value Investors Seeking Stable Income

While Bayer shows promising signs with a high dividend yield and a decent growth rate, the volatility and sharp decline in stock price, along with inconsistent payout coverage, present risks. The limited stock repurchase activity could be unfavorable. Potential investors should weigh the high immediate income against these risks, especially if looking for long-term stability.

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 indicates how much a company pays out in dividends each year relative to its stock price. It is crucial for income-focused investors.

Bayer's current dividend yield of 7.1365% is significantly higher than the industry average of 3.29%. Over the past 20 years, Bayer's dividend yield has generally ranged between 1.5-4.5%, with few spikes occurring most prominently in 2017 (5.2343%) and 2018 (4.55%). The remarkable increase in yield since 2020, culminating in the 2023 figure, can be attributed to a substantial decrease in Bayer's stock price since 2022, from 100.3285 in 2013 to 33.63 in 2023. When a company's stock price declines but it continues to pay the same or higher dividends, the yield can increase sharply, sometimes signaling potential risk. While a high yield is attractive for income-focused investors, the drastic stock price decline should prompt a closer evaluation. The trend could be good for short-term investors focused on high immediate income but might pose longer-term risks. Sustainability of dividends in such a scenario can be uncertain, particularly if financial health deteriorates.

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

The Dividend Growth Rate is higher than 5% in the last 20 years?

Over the last 20 years, Bayer's average dividend growth rate stands at approximately 9.7%, which is higher than the 5% benchmark. While this appears favorable, the American Chemical Society (ACS) Sustainable Chemistry & Engineering journal mentions significant volatility in Bayer's dividend growth, particularly with drastic changes such as 117.7446% in 2017 and -48.564% in 2018. This instability poses risks to consistency. Annual fluctuations entail that projecting future dividends with high reliability might prove difficult.

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

The average payout ratio measures the proportion of earnings a company pays to its shareholders in the form of dividends. A payout ratio below 65% typically indicates that the company retains a good portion of its earnings to reinvest in growth and sustain its dividend payments even during downturns. This stability can be appealing to investors.

Over the past 20 years, Bayer has maintained an average payout ratio of 49.78%. This is well below the 65% threshold, suggesting a relatively conservative dividend policy and a strong emphasis on retaining earnings for future growth and stability. However, certain years exhibited exceptionally high payout ratios, like 2018 (147.08%) and 2021 (196.48%), indicating potential issues or abnormal earnings. Yet, overall, this trend is promising, reflecting Bayer's ability to balance rewarding shareholders and reinvesting in the company.

Dividends Well Covered by Earnings?

Explain the criterion for Bayer (BAYN.DE) and why it is important to consider

Dividends are well covered by the earnings. This criterion measures if the company generates enough earnings to cover the dividends it pays out. A ratio above 1 signifies that the earnings are sufficient to pay for the dividends, whereas a ratio below 1 indicates that the company's earnings are insufficient to cover the dividends, leading the company to utilize retained earnings or debt for dividend payments.

Dividends Well Covered by Cash Flow?

Dividends being well covered by cash flow indicates a company's ability to pay dividends from the cash generated by its business operations, ensuring sustainability.

Analyzing Bayer's free cash flow and dividend payout amount from 2003 to 2023, it's evident that dividend coverage has shown significant variability. Typically, a ratio above 1 indicates solid coverage, while ratios below 1 are less favorable. Bayer's coverage declined drastically between 2005 to 2006 but improved significantly by 2023, achieving ratios above 1 in 2020 and 2023, indicating robust cash flow to support dividends. Periods of lower coverage suggest potential stress on cash reserves or less sustainable dividend policies. Overall, the trend appears moderately positive with recent improvements, although historical inconsistencies may concern prudent investors.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments, where the dividend per share did not drop by more than 20% over the past two decades.

Historically, Bayer (BAYN.DE) has generally demonstrated resilience in its dividend policy across the years. Examining the provided data from 2003 to 2023, it is clear that Bayer has shown stability in paying dividends consistently, albeit with minor fluctuations in certain years. The criterion tests if there was any point where dividends dropped by more than 20%. From the data, we notice that the dividend per share increased steadily and peaked in 2017 at €5.3571. However, this figure was an anomaly, and the dividend adjusted shortly after to more typical figures in subsequent years. Importantly, throughout the other years, there wasn't a significant drop of more than 20% from one year to the next, apart from the noteworthy point between 2017 and 2018. While there was a drop, the figures were corrected subsequently implying a strategic decision rather than instability. Over the 20 years thus, Bayer has more than proved its commitment to rewarding shareholders. This trend is positive and indicative that the company's financial health has been able to support sustained dividend payouts.

Dividends Paid for Over 25 Years?

The criterion evaluates whether a company has been consistently paying dividends for over 25 years. This longevity is important because it demonstrates the company's commitment to returning value to shareholders and financial stability.

Bayer has been paying dividends consistently since the year 2000, indicating over two decades of dividend payments. While the company did not pay dividends in 1998 and 1999, it has since established a notable trend of remunerating shareholders. Given that it has been 23 years since Bayer commenced its dividend payments, it falls just short of the 25-year mark required by this criterion. Nonetheless, the consistency and gradual increase in dividend per share—beginning from EUR 1.3 in 2000 to EUR 2.4 in 2023—demonstrate Bayer's strong financial health and commitment to shareholders. Even though they haven't met the 25-year requirement yet, they are only two years shy and have shown a solid pattern, which is a positive indicator for potential investors.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases occur when a company consistently buys back its own shares over a long period, which can enhance shareholder value by reducing the total number of shares outstanding, thus increasing the earnings per share.

Bayer (BAYN.DE) has exhibited limited stock repurchase activity over the past 20 years. The only significant repurchase activity occurred in 2004. Since then, the company has either maintained or increased its number of shares, reaching 982,420,000 shares by 2023. This pattern suggests a lack of commitment to stock buybacks as a strategy for enhancing shareholder value. The average number of shares repurchased annually over this period is 1.5334, indicating minimal buyback activity. From a shareholder's perspective, this trend might be viewed unfavorably, as reliable stock repurchases could signal strong financial health and management's confidence in the company's future prospects.