Last update on 2024-06-27

EDP - Energias de Portugal (EDP.F) - Dividend Analysis (Final Score: 4/8)

Analyze the performance and stability of EDP - Energias de Portugal (EDP.F) dividend policy using an 8-criteria scoring system. Final Score: 4/8.

Short Analysis - Dividend Score: 4

We're running EDP - Energias de Portugal (EDP.F) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

The dividend analysis of EDP - Energias de Portugal evaluates its performance based on 8 key criteria. EDP's dividend yield is higher than the industry average, which is good for income-focused investors. However, its dividend growth rate has been erratic, and the average annual payout ratio is too high, suggesting potentially unsustainable practices. While dividends are partially covered by earnings and cash flow, there is significant volatility in both metrics. The dividend history is relatively short and inconsistent, only starting in 2012, and does not meet the 25-year payout criterion. Stock repurchases have been sporadic and show varying commitment.

Insights for Value Investors Seeking Stable Income

Based on the analysis, EDP presents a mixed picture. Income-focused investors might appreciate the high dividend yield, but the instability in growth rate, payout ratio, and earnings/cash flow coverage might be a concern. The short and inconsistent dividend history could also deter long-term investors. Therefore, it might be wise to approach EDP with caution and consider other options if stability and long-term consistency are key investment criteria.

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 shows how much a company pays out in dividends each year relative to its stock price. It is important as it provides investors with an idea of the income they can expect from holding the stock and can be a sign of the company's financial health.

EDP's current dividend yield of 4.1943% is higher than the industry average of 3.75%, indicating that the company is providing a relatively higher income return to its shareholders compared to its peers. Over the past 20 years, EDP's dividend yield has fluctuated significantly, with notable peaks, such as 51.6976% in 2021, which was an outlier driven by a special dividend. Generally, the company's yield has been above the industry average since 2011, suggesting a consistent willingness to return capital to shareholders. This is a positive trend for income-focused investors, although the high volatility in yield might require cautious analysis. The relatively stable stock price and dividend per share over recent years also support a positive interpretation of EDP's dividend yield trend.

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

The Dividend Growth Rate (DGR) is the annualized percentage rate of growth of a company's dividend. A DGR above 5% is often considered healthy and sustainable, reflecting the company's ability to generate increasing profits.

Analyzing EDP - Energias de Portugal (EDP.F) from the dividend data provided over the last 20 years, the values for the dividend per share ratio are volatile, ranging from -92.3611 to 1237.0951. These fluctuations, particularly the negative values and extreme high spikes, indicate instability in dividend payout. An average dividend ratio of 57.418 suggests growth, yet the inconsistency across the years points to an erratic dividend policy. Thus, while some years show promising increases, the overall trend does not align with a stable, healthy growth rate above 5%. Therefore, the trend is bad for a 5% dividend growth criterion over the last 20 years.

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

A Payout Ratio lower than 65% typically indicates that a company is retaining enough of its earnings to fund growth and other financial needs. It also suggests sustainability.

The Payout Ratio for EDP over the last 20 years indicates an average of 100.37%, which is significantly above the desired threshold of 65%. This trend is concerning as payout ratios above 100% indicate that the company is paying out more in dividends than it is earning in profits, pointing to potential unsustainable practices. High payout ratios in recent years, particularly the extreme spikes such as 273.24% in 2019, 1494.38% in 2021, and other instances, suggest that EDP might be financing its dividends through debt or asset sales, which isn't a sustainable long-term strategy. If this continues, EDP's future financial flexibility and growth prospects could be compromised.

Dividends Well Covered by Earnings?

Dividends being well covered by earnings is a crucial criterion to assess the sustainability of dividend payments. This indicates that the company's profits are sufficient to cover dividend payouts, safeguarding against future dividend cuts.

The data indicates that during the span of 2003 to 2023, EDP's dividends per share were generally well-covered by earnings per share, except for the earlier years (2003-2010), when no dividends were paid. From 2011 onwards, the dividends were instituted, and we use the ratio of dividends per share to earnings per share to evaluate coverage. The ratio of dividends covered by EPS from 2011-2023 is highly fluctuating. For instance, in 2016, this coverage stood at 0.07, suggesting low coverage, whereas in 2019, it was as high as 2.73. Most notably, in 2021, the EPS has significantly decayed to a minimal 0.1664 while dividends remained consistent, thus pushing the coverage ratio significantly high to a steep 14.94 in 2021, indicating that the earnings struggled to cover the dividends sufficiently. However, beyond 2021, there is improvement seen in 2022 and 2023 (1.10, 0.82 respectively), reflecting slightly better stability. As EPS shows volatility, it brings up concerns regarding the long-term sustainability of dividend payments. Therefore, though it shows trends of improvement lately, unpredictability in EPS can pose risks to future dividends continuation for shareholders.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow are a vital metric for assessing a company's financial health, as they ensure that dividends are sustainable and do not undermine company liquidity.

The trend in free cash flow and dividend payouts for EDP over the years shows significant volatility. The ratio of dividends covered by cash flow fluctuates wildly, from as high as 15.21 in 2020 to deeply negative values like -5.477 in 2012 and -5.414 in 2019. Positive values above 1, like in 2005 (2.298), 2022 (2.699), suggest that EDP comfortably covered its dividends those years, which is a good sign. However, strongly negative numbers indicate that the company had to dip into reserves or other financing methods to meet its dividend obligations, which is worrying. The inconsistency over the years is a bad overall indicator for dividend sustainability.

Stable Dividends Since the Company Began Paying Dividends?

why stable dividends over the past 20 years is crucial for income-seeking investors.

Addressing the criterion of stable dividends over the past 20 years for EDP - Energias de Portugal (EDP.F), we observe the dividend history data provided. Unfortunately, the dataset initially indicates that the dividends commenced only in 2012 with a payment of 0.17. Therefore, analysis prior to that year is not applicable. Post-2012, dividends have shown varied movement. Despite steady dividends from until 2016, there's a notable increase to 0.376 in 2017 and a dramatic increase in 2021, followed by a correction to 0.19 in subsequent years. If we evaluate based on not dropping by 20%, the dramatic dividend of 2.4867 in 2021 is an anomaly that displayed irregularity. Consequently, while futuristic stability post-2021 might look promising ( assuming regular patterns return), the recent dramatic shifts arguably goal persisting of income consistency concerns.

Dividends Paid for Over 25 Years?

Assessing whether a company has paid dividends for over 25 years provides insight into its long-term financial health, stability, and commitment to returning value to shareholders. It can signal reliable cash flow and sustainable business operations.

From the provided data, it's evident that EDP - Energias de Portugal has consistently paid dividends only since 2011 with a noticeable increase in dividends per share from 0.17 EUR in 2011 to 0.19 EUR in 2023. However, the steep jump to 2.4867 EUR in 2021 suggests the possibility of a special or extraordinary dividend. EDP's more recent and consistent dividend payment record over the last 12 years is positive but does not meet the 25-year criterion. This trend is moderately favorable as it demonstrates a commitment to shareholder returns in the more recent decade, but the absence of such history over 25 years indicates potential risks or instability in the company's longer-term performance.

Reliable Stock Repurchases Over the Past 20 Years?

Stock repurchases refer to the act of a company buying back its shares from the marketplace. This action signifies the company's belief that its shares are undervalued and can also help to improve financial ratios like earnings per share (EPS). Reliable stock repurchases over a long period, such as 20 years, show a consistent commitment to returning value to shareholders.

Over the past 20 years, EDP - Energias de Portugal has had varied share counts with highlights in specific years for stock repurchases. Notable years with reliable repurchases include 2007, 2008, 2009, 2017, and 2018. These repurchases indicate the company's strategy to manage and optimize its capital structure. Moreover, the overall trend shows that the number of shares generally increased, with significant jumps, observed particularly after 2016, like in 2017 with approximately 3.7 billion shares, and then surging to around 4.12 billion shares in 2023. Analyzing these numbers, the trend does suggest some volatility in share issued and buyback activities, with average repurchases at 46.5849%. This could indicate a mixed impact of repurchasing strategies, though it shows sporadic strong commitment towards stock repurchases albeit not consistently spread every year. This intermittent strategy might be a response to varying market conditions and the company's financial priorities year-over-year.