Last update on 2024-06-28

Koninklijke DSM (DSM.AS) - Dividend Analysis (Final Score: 6/8)

Koninklijke DSM (DSM.AS) has a stable dividend policy with a final score of 6/8 based on 8 criteria. Learn more about their dividend performance!

Short Analysis - Dividend Score: 6

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

This analysis examines the performance and stability of the dividend policy of Koninklijke DSM (DSM.AS) using 8 criteria. According to the evaluation, DSM has a mixed performance. Firstly, the dividend yield of 2.301% is slightly higher than the industry average but has been decreasing over the years due to a rising stock price, which is positive for long-term shareholders. However, even though DSM achieves an average annual dividend growth of around 8.66%, there's notable volatility in this area. The payout ratio is favorable, averaging 40.69% over 20 years, indicating prudent management. Unfortunately, the earnings do not consistently cover dividends, posing sustainability risks. Stability-wise, DSM has shown good consistency in its dividend payments, generally avoiding major cuts, and has paid dividends for 23 years, close to the benchmark of 25 years. As for stock repurchases, their record is somewhat erratic, showing occasional but not regular buybacks. Overall, DSM scores a 6 out of 8 on this dividend stability criteria user for some minor areas of concern.

Insights for Value Investors Seeking Stable Income

Given the overall analysis, DSM shows a strong commitment to returning value to shareholders through its dividend strategy. However, potential investors should be cautious due to inconsistent earnings coverage of dividends and the irregularity of stock repurchases. For investors seeking stable dividend income, DSM performs reasonably well but needs close monitoring especially on profitability trends. It may be worth looking into DSM if you're comfortable with some risk and value stock appreciation.

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 represents the ratio of a company's annual dividend compared to its stock price. It indicates how much cash flow investors are getting for each dollar invested in the company's stock.

Koninklijke DSM's current dividend yield of 2.301% is marginally higher than the industry average of 2.15%. The dividend yield has been trending lower over the past two decades, peaking at 6.9595% in 2007 and declining to a low of 1.2121% in 2021. This trend correlates with the substantial increase in DSM's stock price from EUR 19.515 in 2003 to EUR 114.3 in 2022. Despite navigating through volatile periods, DSM has consistently paid and moderately increased dividends per share, demonstrated by payouts growing from EUR 0.875 in 2003 to EUR 2.63 in 2022. Although the yield is currently more attractive than the industry norm, the gradual decline in yield over the years indicates a strong appreciation in stock value, which offsets lower relative payouts. Therefore, this trend can be considered positive from a long-term shareholder value perspective, given the growth in stock price compensation.

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

The Dividend Growth Rate measures the annualized percentage increase in dividends paid by the company to its shareholders over a given period.

Looking at DSM's dividend per share ratio over the past 20 years, the trend is somewhat erratic, with significant fluctuations year over year. The average dividend ratio stands at 8.65501%, indicating a reasonable growth overall. Specific years, such as 2006 and 2018, show high dividend increases of 87.4286% and 70% respectively, which bolster the average, despite other years showing declines (e.g., -43.5556% in 2008). Given the overall average, DSM can be considered to have achieved a healthy dividend growth over the long term, exceeding the 5% benchmark consistently enough to be positive. However, the volatility in dividends year-by-year should prompt investors to look closely at the company’s payout stability and economic environment in specific years.

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

The payout ratio indicates the proportion of earnings a company pays to its shareholders in the form of dividends. A lower payout ratio, specifically under 65%, suggests a sustainable dividend policy.

The average payout ratio of Koninklijke DSM over the last 20 years stands at 40.694%, well below the 65% threshold. This is a positive indicator, demonstrating the company's prudent approach towards dividend distribution, ensuring that a significant portion of earnings is retained for reinvestment or for weathering financial instability. Notably, there were years with exceptionally high payout ratios, such as 2013 (97.013%), 2014 (167.6198%), and 2015 (298.6425%). Despite these outliers, the overall trend remains favorable, confirming the sustainability of the company's dividend strategy.

Dividends Well Covered by Earnings?

Dividends being well-covered by earnings implies that the company generates sufficient profit to afford its dividend payouts, ensuring sustainability. The Dividend Cover Ratio (Earnings Per Share divided by Dividend Per Share) is an essential indicator; a ratio above 1 signifies good coverage, while ratios below 1 may indicate potential unsustainability.

Analyzing Koninklijke DSM's dividend cover ratio (Earnings Per Share to Dividend Per Share) over the years, we see significant fluctuations. From 2003 until 2012, the ratio was at 0, indicating no earnings to cover the dividends during these years. However, starting in 2013, the ratio improved, reaching a peak of 2.986 in 2015. The ratio drastically dropped afterward, being notably low in 2016 (0.189). Recent years show slightly better, albeit varied, coverage (2019=0.523, 2020=0.827, 2021=0.248, 2022=0.268), yet still notably below a healthy threshold. This inconsistency and generally low ratios indicate a poor trend in earnings covering dividends, posing a potential risk for sustainability and necessitating caution for dividend investors.

Dividends Well Covered by Cash Flow?

Explain what dividends well covered by cash flow mean and why this criterion is important to consider.

Free cash flow refers to the cash a company generates after accounting for cash outflows to support operations and maintain its capital assets. Dividend coverage, in this case, is indicated by the ratio of free cash flow to dividend payout amount. For Koninklijke DSM (DSM.AS), significant focus should be given on whether the company has sufficient free cash flow to cover its dividend payments over the years. This ensures that the company is not relying on borrowing or depleting its cash reserves to pay dividends, implying financial health and stable or sustainable dividend policies.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments is critical for income-seeking investors as it provides a reliable income stream and reflects the company’s financial health and consistency. A dividend cut of 20% or more suggests potential financial instability.

Koninklijke DSM's dividend per share over the past 20 years shows overall stability with minor fluctuations. The values maintained an upward or stable trend in most years; significant changes like in 2008 (from 2.25 to 1.27) and 2018 (from 1.2 to 2.04) reflect market conditions but didn't breach the critical 20% reduction threshold. This consistent stability with slight year-on-year increases indicates a solid financial footing, which is highly favorable for dividend-focused investors looking for steady income. Thus, DSM's dividend trend over two decades is promisingly stable, supporting its reliability as a dividend-paying stock.

Dividends Paid for Over 25 Years?

Examining whether a company has consistently paid dividends over a 25-year period is crucial for assessing its reliability and commitment to returning value to shareholders. A long history of consistent or increasing dividends is a sign of financial health and stability.

Koninklijke DSM (DSM.AS) has consistently paid dividends from 2000 to 2022, missing a few years to reach the full 25-year period. However, for the available 23 years, DSM has demonstrated a strong commitment to returning value to its shareholders. Starting from €0.76 per share in 2000, the dividend per share has generally increased, reaching €2.63 in 2022, reflecting a CAGR (Compound Annual Growth Rate) of approximately 5.8%. This is a positive trend, showing the company's growing profitability and robust financial health. Despite some fluctuations, such as a dip in 2003 and 2006, the overall trajectory is upwards, underscoring financial resilience which is critical for long-term investors.

Reliable Stock Repurchases Over the Past 20 Years?

Explain the criterion for Koninklijke DSM (DSM.AS) and why it is important to consider

Explanation: Reliable stock repurchases are a measure of a company's returning value to shareholders and reducing the number of shares outstanding. This can signal to investors that management believes the shares are undervalued or sees no better use of capital. Over the last 20 years, DSM has had an average repurchase rate of 4.4953%. This trend seems to be variable. In 2016, 2019, 2020, reliable repurchases occurred, reflecting a strategic approach to capital allocation. However, stagnant numbers over longer periods suggest that repurchases aren’t consistently a focus for DSM. This variability can either be seen as flexibility or as inconsistency, depending on investor perspective.