Last update on 2024-06-27

Elia Group (E4S.F) - Dividend Analysis (Final Score: 3/8)

Elia Group (E4S.F) dividend analysis using an 8-criteria scoring system, resulting in a score of 3/8, exploring stability, growth, and coverage.

Short Analysis - Dividend Score: 3

We're running Elia Group (E4S.F) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

The Elia Group (E4S.F) has an overall dividend score of 3 out of 8 based on the evaluated criteria. Here's a summary of the findings: 1. **Dividend Yield**: At 1.7023%, Elia's yield is below the industry average of 3.12%, and this trend has been declining while the stock price increased. 2. **Dividend Growth Rate**: The growth rate is inconsistent and has averaged below the desired 5% over 20 years, showing significant fluctuations. 3. **Payout Ratio**: Elia maintains a low average payout ratio of 25.85%, well below the 65% threshold, indicating sustainability. 4. **Earnings Coverage**: Dividends are well-covered by earnings, maintaining a consistent ratio below 1 suggesting profitability. 5. **Cash Flow Coverage**: The coverage by cash flow is concerning, with erratic ratios and recent negative figures, suggesting potential financial instability. 6. **Dividend Stability**: Dividends have grown steadily since 2011 without significant drops, indicating stable income potential for investors. 7. **25-Year Record**: Elia lacks a 25-year history of dividend payments, having paid consistently for only 12 years. 8. **Stock Repurchases**: Inconsistency in stock buybacks over the past 20 years, with trends indicating potential dilution of shares.

Insights for Value Investors Seeking Stable Income

Considering the analysis, the Elia Group shows several strengths, such as a sustainable payout ratio and stable dividend growth since 2011. However, its declining dividend yield, inconsistency in dividend growth and cash flow coverage, and lack of a long 25-year history of dividend payments pose some concerns. For long-term, income-focused investors, it might be prudent to watch the company's future performance closely or explore other options with stronger dividend histories and stability. Given these factors, prospective investors should proceed with caution.

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 the ratio of a company's annual dividend compared to its share price. It represents the return on investment for shareholders in terms of dividends. A higher-than-average dividend yield can be attractive to income-focused investors.

Elia Group's dividend yield stands at 1.7023%, which is considerably lower than the industry average of 3.12%. Over the last 20 years, Elia's dividend yield peaked in 2011 at 4.7878% but has gradually declined to its current level. This downward trend can be seen from 2011's 4.7878% yield down to 1.7023% in 2023. This suggests that while Elia's stock price has appreciated significantly (as evidenced by the increase from €30.1664 in 2005 to €112.2 in 2023), the dividend growth has not kept pace. This trend may be concerning for income-focused investors as the return in the form of dividends has decreased over time. Moreover, despite the notable increases in the stock price, the dividend yield's downward trend indicates that shareholders are receiving a lower dollar amount per share of investment compared to the industry average.

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

Criterion 1.1 focuses on the Dividend Growth Rate, which measures the annualized percentage rate of growth of a company's dividend. It is important because a consistent dividend growth rate above 5% can signal financial health and strong future cash flows. This appeals to dividend investors seeking both yield and capital growth.

The Dividend Growth Rate exceeding 5% over the past 20 years can indicate that Elia Group has a strong dividend distribution policy. However, reviewing the given data, the Dividend Per Share Ratio fluctuates significantly, from -21.25% in 2012 to 33.33% in 2013, indicating volatility. This level of fluctuation suggests the company's dividend payout is not stable, potentially reflecting variable earnings performance or changes in dividend policy. Moreover, the average dividend ratio stands at 1.85%, which is below the 5% benchmark, indicating Elia Group typically does not meet the desired growth criteria overall. While specific years may offer exceptional growth, the inconsistency and low average over 20 years are concerning from an investor's perspective.

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

This criterion looks for the average payout ratio, calculated as dividends paid to shareholders divided by net income, over a long period. A lower ratio implies sustainable dividend distributions.

The data indicates Elia Group has maintained an average payout ratio of approximately 25.85% over the last 20 years, which is significantly lower than the 65% threshold. The payout ratio hovered comfortably below the critical 65% for most of the analyzed years, with peak values reaching 62.23% in 2011 but steadily staying much lower after that. Generally, such a low average payout ratio positively portrays the company's capacity to distribute sustainable dividends without jeopardizing its financial stability. Therefore, the trend is favorable for long-term investors seeking steady income.

Dividends Well Covered by Earnings?

Dividends covered by earnings are important to consider as they indicate the company's ability to sustain or grow its dividend payments from its profits.

Analyzing the data from 2009 to 2022, Elia Group's dividend payout ratio has fluctuated but has consistently been below 1. This trend indicates that the company has been generating enough earnings to cover its dividend payments, suggesting a sustainable dividend policy. For example, in 2011, the coverage ratio was 0.622, and in 2022, it was around 0.343. Although lower coverage might suggest a risk, consistently positive coverage ratios highlight strong earnings performance overall.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow imply that a company's earnings from operations are sufficient to pay its dividends. This is important as it reflects financial stability and sustainability of dividend payments.

Examining Elia Group's free cash flow (FCF) against its dividend payout amount over several years reveals a concerning trend. The ratio of dividends covered by cash flow (DCCF) varies dramatically, from a high of 9.71 in 2009 to negative figures in multiple years including a troubling -36.72 in 2023. A ratio above 1 indicates dividends are well-covered, whereas below 1 suggests that the company is paying out more in dividends than it earns in cash flow, potentially unsustainable. For instance, in 2021, only 4.3% of dividends were covered by FCF, improving slightly to a still inadequate -3.67% in 2023. This inconsistency and overall negative trend are concerning, indicating potential financial instability and unsustainable dividend practices, thereby making this trend negative overall.

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.

The dividend per share for Elia Group (E4S.F) has grown steadily from €1.40 in 2011 to €1.91 in 2023, with no observable drops of 20% or more in any given year. This indicates strong financial health and a reliable income stream for investors. Over the past 20 years, the company went from not paying dividends at all to forming a consistent upward trend in payouts. This stability and growth suggest the management's commitment to sharing profits with shareholders and a robust underlying business. Therefore, the trend is highly favorable for income-seeking investors as it reflects reliability and consistent growth in shareholder returns.

Dividends Paid for Over 25 Years?

Discuss whether a company has paid dividends consistently for over 25 years.

Upon examination of Elia Group's dividend history, it is observable that the company has been consistently paying dividends since 2011. This encompasses a period of 12 consecutive years, as opposed to the desired benchmark of 25 years. A history of prolonged dividend payments often suggests company stability and management's commitment to returning profits to shareholders. However, since Elia Group has not met the 25-year threshold, it creates an impression that, while still showing promise, more time is required for establishing a robust long-term payout record. As dividends per share (DPS) have shown consistent growth over this observed period, it reflects positively on the company's earnings stability and capacity to return profits to shareholders. The trend, with dividends growing from €1.4 in 2011 to €1.91 in 2023, is commendable, signaling ongoing financial health and potential for future consistency in dividends.

Reliable Stock Repurchases Over the Past 20 Years?

Criteria of reliable stock repurchases over a period of 20 years evaluates the consistency and regularity of a company's stock buyback program. It is important as regular stock repurchases can signal strong cash position and management's confidence in its future.

Analyzing the data from the Elia Group (E4S.F) over the past 20 years, it is observed that their trend in stock repurchases is NOT consistent. Despite two reliable repurchased years noted in 2021 and 2023, there has been a noticeable increase in the number of shares from 10,734,245 in 2003 to 71,142,846 in 2022. The average repurchase rate of 12.6509 represents a low consistency in buying back shares across the period. This trend is generally seen as bad since it points towards dilutions. Persistent increment in the number of shares might make it challenging to provide sustained returns to shareholders through dividends.