Last update on 2024-06-27

Draegerwerk (DRW3.DE) - Dividend Analysis (Final Score: 5/8)

Evaluate the performance and stability of Draegerwerk (DRW3.DE) dividends using an 8-criteria scoring system, achieving a solid score of 5 out of 8.

Short Analysis - Dividend Score: 5

We're running Draegerwerk (DRW3.DE) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

The analysis checks how Draegerwerk (DRW3.DE) performs against an 8-criteria system to evaluate its dividend policy. It scores 5 out of 8, which shows some good points and a few concerns. The dividend yield of 0.3668% is currently above the industry average of 0.29%, indicating a potentially attractive income source. However, the dividend growth rate is quite unstable despite having an average annual growth rate of 32.58%. Also, the payout ratio is very conservative, averaging at 12.46%, much lower than the acceptable 65% threshold, which suggests that the company prefers retaining earnings for growth. Yet, the stability of dividend payments is questionable; Draegerwerk has had significant dividend cuts in the past two decades. It has been paying dividends for over 25 years, showing a long-term commitment to shareholders. Lastly, consistent stock repurchases are seen as a good sign, indicating confidence in future economic performance.

Insights for Value Investors Seeking Stable Income

While Draegerwerk shows some promising traits such as a competitive dividend yield and conservative payout ratio, the instability in its dividend payments over the years is concerning. Therefore, for investors seeking consistent and stable dividend income, Draegerwerk may not be the best choice. However, if you are interested in a potential growth stock that retains earnings for expansion, it might be worth a look but proceed with caution due to its erratic dividend history.

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?

Criterion 1 requirement looks at the dividend yield, which represents the ratio of a company's annual dividend compared to its share price. It is vital for assessing the income-generating ability of an investment.

Draegerwerk's current dividend yield is 0.3668%, above the industry average of 0.29%. Historically, the company's dividend yield has fluctuated, peaking at 2.3029% in 2015, and has seen a significant drop over recent years. Nonetheless, the yield remains above the industry average in 2023, suggesting a relatively attractive income potential for investors. The current yield also signals stability, given its consistent performance above industry average despite variations in market conditions.

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

The Dividend Growth Rate indicates how the dividends issued by the company have grown over time. A growth rate higher than 5% suggests a strong and sustainable ability of the company to increase shareholder values.

Analyzing Draegerwerk's dividend growth rate over the last 20 years, we observe a highly erratic pattern, marked by significant fluctuations, including several years with zero or negative dividend growth rates. The average dividend growth rate of 32.58%, while seemingly impressive, is skewed by these extreme values, especially significant spikes like 197.5% in 2011 and 384.21% in 2013. However, these spikes are interspersed with severe declines and several non-payment years, indicating an unstable dividend policy. Thus, while the average growth rate surpasses 5%, the inconsistency makes it not reliably good for consistent dividend income.

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

A payout ratio under 65% indicates a company's ability to retain earnings and reinvest them for growth.

The long-term average payout ratio for Draegerwerk stands at 12.46%, significantly lower than the 65% threshold. This is a positive indicator, demonstrating the company's conservative approach to dividend payouts and its emphasis on retaining earnings for future growth. However, the year 2015 had an abnormally high payout ratio of 84.33%, which might have been influenced by extraordinary circumstances. Overall, this conservative dividend payout suggests a stable financial health and a prudent management strategy.

Dividends Well Covered by Earnings?

Explain the criterion for Draegerwerk (DRW3.DE) and why it is important to consider

The criterion looks at the degree to which dividends are supported by the company's earnings, typically expressed by the ratio of Earnings Per Share (EPS) to Dividend Per Share (DPS). This ratio is critical because a sustainable dividend policy ensures that the company is not excessively depleting its earnings to pay dividends, thereby preserving capital for growth or other strategic investments.

Dividends Well Covered by Cash Flow?

Explain the criterion for Draegerwerk (DRW3.DE) and why it is important to consider

Dividends well covered by cash flow is vital for sustainable dividend payouts. When free cash flow (FCF) consistently covers or exceeds dividend payouts, it reflects the company's capacity to sustain or grow dividends without jeopardizing its financial stability. Positive FCF implying greater dividends coverage indicates a strong financial health.

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, is of utmost importance for income-seeking investors.

Examining the provided annual dividends, Drägerwerk's dividend per share has experienced significant fluctuations. Notably, from 2008 to 2009, dividends decreased from 0.55 to 0.35, a drop exceeding 20%. Another substantial drop was in 2011, where dividends fell from 1.19 to 0.19 in 2012, over 80% reduction. This trend does not align with the criterion of stability needed by income-seeking investors. Historically, Drägerwerk has shown considerable volatility in its dividend payments. This inconsistency can cause uncertainty for investors relying on dividend income. Therefore, based on these fluctuations, Drägerwerk does not meet the criteria for stable dividend payments over the past two decades.

Dividends Paid for Over 25 Years?

Explain the criterion for Draegerwerk (DRW3.DE) and why it is important to consider

When evaluating dividend stocks, the consistency and longevity of dividend payments are crucial indicators of financial stability and shareholder value. The payment of dividends for over 25 years demonstrates a company’s long-term commitment to returning value to its shareholders. It also indicates consistent profitability and prudent financial management, which can be reassuring for conservative investors.

Reliable Stock Repurchases Over the Past 20 Years?

Explain the criterion for Draegerwerk (DRW3.DE) and why it is important to consider

Reliable stock repurchases over the past 20 years are significant for several reasons. Consistent buybacks often signal a company’s confidence in its future earning potential and stability. By repurchasing shares, the company essentially returns value to the shareholders in a tax-efficient manner compared to dividends. Additionally, buybacks can positively influence the earnings per share (EPS) by reducing the total number of shares outstanding, which might naturally boost the share price as the earnings get distributed over fewer shares.