Last update on 2024-06-27

Ecolab (ECL) - Dividend Analysis (Final Score: 6/8)

Explore the strengths and weaknesses of Ecolab (ECL) dividend policy through an 8-criteria scoring system, providing a comprehensive analysis for investors.

Short Analysis - Dividend Score: 6

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

The dividend analysis for Ecolab (ECL) reveals a mixed conclusion based on the 8-criteria scoring system, with a total score of 6 out of 8. Key findings include: a lower-than-industry-average dividend yield of 1.089%, consistent long-term dividend payments spanning over 25 years, an average payout ratio well below 65% (31.02%), and dividends reliably covered by earnings and cash flow. However, ECL exhibits volatility in dividend growth and had notable dips such as in 2016-2017 and during the COVID-19 pandemic. Stable dividends point towards financial stability, while irregular stock repurchases and occasional high payout ratios reveal periods of strategic bailout.

Insights for Value Investors Seeking Stable Income

Given these findings, it is suggested that while Ecolab (ECL) may appeal to long-term income investors due to its consistent dividend payouts and fiscal management, the lower dividend yield and occasional volatility in growth rates should be considered. Investors seeking high yields might find ECL less attractive, but those valuing stability and management's commitment to shareholder returns might find it worth investigating further.

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 from dividends alone, independent of any capital gains. This measure is pivotal for income-focused investors seeking regular cash flows from dividends. A higher dividend yield can be attractive, particularly if the company's business fundamentals are strong.

Examining Ecolab (ECL)'s 1.089% dividend yield against the industry average of 2.37%, it is evident that ECL offers a lower yield compared to peers. Over the past 20 years, ECL's dividend yield has shown fluctuations, with the highest being 1.51% in 2016 and 2008, and maintaining around 1% in other years. This suggests that Ecolab's dividend yield remains consistently lower than its industry average. The stock price has growth significantly over the years from $27.37 in 2003 to $198.35 in 2023. The dividend per share has increased from $0.299 in 2003 to $2.16 in 2023. Despite the low yield, the consistent increase in dividend per share shows commitment to rewarding shareholders, albeit with higher stock price, it results in a lower yield. Hence, for dividend investors, this may not be an attractive stock purely based on yield.

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

Dividend Growth Rate analysis involves evaluating the annual percentage growth rate of a company's dividend payments. This metric helps determine if a company's dividends are growing, stagnant, or declining, and such growth typically signifies a company's healthy earnings and commitment to returning value to shareholders.

Over the past 20 years, the Dividend Per Share Ratio for Ecolab (ECL) fluctuates considerably, ranging from highs such as 32.0896 in 2016 to lows of -14.1243 in 2017. Calculating growth rate involves measuring the compound annual growth rate (CAGR). The average dividend ratio of 10.6396 gives us an indicative rate but actual percentages from year-to-year must achieve consistency. While there are positive growth trends, years with sharp declines (e.g., -14.1243 in 2017) could drag the average growth below 5%, indicating mixed performance. This trend generally indicates instability in maintaining a growth rate above 5%, which can be interpreted as bad for consistency-focused investors.

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

The average payout ratio measures the percentage of earnings a company pays to its shareholders in dividends. It's crucial to keep it below 65% to ensure the company retains enough earnings to invest back into the business and maintain financial flexibility.

Ecolab (ECL) has maintained an average payout ratio of 31.02% over the last 20 years, which is well below the 65% threshold. This indicates a conservative approach to dividend payouts, striking a balance between rewarding shareholders and retaining earnings for reinvestment. The payout ratio has remained relatively stable over the years, although there was a notable dip in 2020 with a payout ratio of -45.01%, likely due to the economic impact of the COVID-19 pandemic. Overall, this trend of maintaining a low payout ratio is favorable as it suggests Ecolab is managing its earnings efficiently and sustainably.

Dividends Well Covered by Earnings?

Earnings per share (EPS) should adequately cover dividend payments. This ensures dividend sustainability and provides a safeguard for the company's finances.

To determine if Ecolab's dividends are consistently covered by its earnings, we will assess the ratio of its dividends per share to its earnings per share (EPS) from 2003 to 2023. Ideally, this ratio should remain below 1 to indicate that earnings are sufficient to support the dividend payments. Analyzing the provided data: - For most years, the dividend payout ratio is well below 1, implying that ECL has been able to cover its dividends with its earnings. Ratios generally range between 0.28 and 0.54, confirming earnings were prioritized over dividends. - The year 2020 stands out with a negative EPS (-4.199), leading to an unfavorable ratio. This anomaly likely results from extraordinary circumstances such as the COVID-19 pandemic, indicating an exceptional event rather than a regular trend. - Post-2020, the payout ratios improved again with 2021 showing 0.494 and 2022 recording 0.538. Both ratios are still under the critical threshold of 1, demonstrating recovery and sustainability. Conclusively, the dividend payout is generally well-covered by EPS, except for the anomaly in 2020 due to external factors. Thus, Ecolab's overall trend in ensuring dividends are covered by earnings is favorable, pointing to a sound dividend policy and reliable management practices over the long term.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow refers to the extent to which a company's dividend payments are supported by its free cash flow. This criterion is crucial for evaluating the sustainability of dividends, as higher coverage implies better financial health and less risk of dividend cuts.

Examining the relationship between Ecolab's (ECL) free cash flow and its dividend payout amount from 2003 to 2023, a trend emerges that merits detailed analysis. With the free cash flow starting at $317.164 million in 2003 and ending at $1.637 billion in 2023, the also-volatile patterns in dividend payouts ($75.413 million in 2003 to $617.3 million in 2023) show varied coverage ratios. A lower ratio often indicates higher risk of dividend cuts, but ECL maintaining the ratio consistently above 0.2 (20%) is positive. However, anomalies exist in 2011 (0.51), linked to strategic decisions impacting profitability. Post-2011 stabilisation around 0.3-0.4 is commendable, with the peak in 2022 (0.56) signalling robust free cash flows vis-a-vis dividend obligations. This overall trend suggests improved fiscal management and dividend sustainability, solidifying Ecolab's (ECL) reputation for being consistent in rewarding shareholders while balancing growth and operational investments.

Stable Dividends Since the Company Began Paying Dividends?

The consistency of dividends over a long period is crucial for income seekers as it indicates financial stability, reliability, and a shareholder-friendly approach in distributing profits.

Over the past 20 years, Ecolab (ECL) has shown a general trend of increasing dividends per share, starting from $0.2985 in 2003 to $2.16 in 2023. However, there was a notable drop of approximately 14.12% from $1.77 to $1.52 between 2016 and 2017. Despite this, the overall trend suggests good dividend growth, reflecting a strong commitment to returning capital to shareholders.

Dividends Paid for Over 25 Years?

Evaluating whether Ecolab (ECL) has a history of paying dividends for over 25 years helps investors assess the company's commitment to returning profits to shareholders and its financial stability over time.

The data shows that Ecolab (ECL) has consistently paid dividends for over 25 years, as evidenced by the annual dividend payments from 1998 through 2023. The dividend per share has grown from $0.195 in 1998 to $2.16 in 2023, indicating not only persistence in payouts but also a significant increase in the dividend amount over the years. This long history of dividend payments is a positive trend for Ecolab, showcasing its reliable cash flow and management's dedication to rewarding shareholders. Investors typically view such consistency favorably, as it suggests financial stability and a shareholder-friendly approach.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable Stock Repurchases for Ecolab (ECL) examined over a 20-year period are crucial. Regular buybacks can signal financial strength, management confidence, and efficient use of capital, often leading to beneficial per-share metrics.

Over the last 20 years, Ecolab has demonstrated consistent buyback activity in 15 out of 20 years. The years without significant repurchases include 2003, 2011, 2012, 2013, and 2014. Notably, a sizeable jump in share count is observed in 2011 and 2012, likely due to acquisitions or other strategic investments. Nonetheless, the overall repurchase pattern—with an average of 0.536—indicates a strong commitment to returning value to shareholders over the long term. This sustained activity, despite some fluctuations, underscores positive management strategies and a solid financial footing.