Last update on 2024-06-27

Estee Lauder Companies (EL) - Dividend Analysis (Final Score: 7/8)

Estee Lauder Companies (EL) Dividend Analysis yields a 7/8 score, evaluating industry alignment, growth rate, payout ratio, and dividend stability.

Short Analysis - Dividend Score: 7

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

The dividend analysis evaluates Estee Lauder Companies' (EL) dividend performance using eight key criteria. The company scored a 7 out of 8, indicating strong performance and stability in its dividend policy. The analysis considers various aspects, such as the dividend yield, growth rate, payout ratio, earnings coverage, cash flow coverage, stability, history of dividend payments, and stock repurchases. The findings showcase that even though Estee Lauder's dividend yield slightly falls below the industry average, it has demonstrated consistent dividend growth and low payout ratios, reflecting strong financial management. Additionally, the company has paid dividends for more than 25 years and maintained a solid record of stock repurchases, reinforcing its commitment to shareholder returns.

Insights for Value Investors Seeking Stable Income

Estee Lauder Companies (EL) appears to be a solid choice for dividend investors. Despite some fluctuations in dividend yield and occasional drops in dividend per share, the overall long-term trends show strong growth and stability. The company's low payout ratio and ability to cover dividends with earnings and cash flow indicate sustainable dividend payments. The long history of consistent dividend payments and reliable stock repurchases further add to its attractiveness. As an investor, Estee Lauder's strong financial health and shareholder-centric policies make it worth considering for a dividend-focused portfolio.

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

When analyzing the dividend yield for Estee Lauder (EL), it is evident that the company's current yield of 1.8051% is marginally below the industry average of 1.82%. Over the past 20 years, Estee Lauder's dividend yield has fluctuated considerably, with lows of 0.5598% in 2020 and highs of over 2% in 2016. There are years where the yield significantly underperformed the industry, and notably, the stock price at the outset, such as in 2010, where yields stayed below 1%, reflecting limited returns for investors relying on dividends. However, the relatively recent high spike in 2021 of 2.19%, slightly above the industry average of 1.87%, demonstrates a recovery and subsequent stabilization post economic challenges rooted in periods like 2008. Despite Estee Lauder having periods of lower yields than the industry, the company's consistency in dividend payouts offers merit. Future investors might consider both this historical performance and the company's industry alignment when assessing the appeal of EL's dividend offerings.

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

The Dividend Growth Rate is the annualized percentage rate of growth of a company's dividend payouts. It is important because it provides insight into the company's potential to generate additional earnings and return value to shareholders over time. A consistent and higher than 5% growth rate suggests that the company can sustain and potentially increase its dividend payouts, which is attractive to dividend-seeking investors.

Looking at the provided Dividend Ratio, it varies widely from -15.8192% to 50.9804% across the last 20 years. Despite the volatility in some years, the Average Dividend Ratio stands at 16.054%, significantly above the 5% threshold. This average indicates that Estee Lauder Companies (EL) has demonstrated robust growth in dividend payouts over the long term. This trend is generally favorable for investors as it implies sustained earnings growth and a shareholder-friendly management. Such a growth rate in dividends highlights the company's ability to reward its shareholders consistently, making it an attractive choice for dividend investors.

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

A lower average payout ratio, specifically less than 65%, signifies that the company retains more of its earnings for reinvestment and growth. This is crucial as it reflects the company’s ability to sustain and possibly increase dividend payouts in the future.

Estee Lauder Companies (EL) has maintained an average payout ratio of approximately 39.14% over the past 20 years. This relatively low payout ratio suggests that the company has consistently retained a substantial portion of its earnings for growth and other operational needs. Specifically, with individual annual payout ratios ranging from 22.02% to 93.92%, it indicates a disciplined approach to dividend payments, ensuring sustainability. Despite some fluctuations, the ability to keep the average payout ratio well below 65% is a positive indicator, pointing towards a sound financial strategy where the company balances rewarding shareholders with retaining earnings for reinvestment. Hence, this trend is favorable for long-term investors relying on dividend sustainability and potential growth.

Dividends Well Covered by Earnings?

This criterion examines if earnings per share (EPS) sufficiently cover dividends per share (DPS), reflecting a company's ability to sustain and grow its dividends.

Analyzing the EPS and DPS of Estee Lauder Companies (EL) from 2003 to 2023, we see varying coverage ratios. Good coverage ratios are typically above 2.0 (50%) to ensure sustainability. EL shows fluctuations: some years below 0.3 (30%) like in 2009 (0.50) and 2013 (0.286), indicating less-than-ideal coverage and possible risks in maintaining dividends during lean periods. Positive years include 2019 (0.7905) and 2023 (0.9392), showing strong ability for dividend payouts from earnings. Generally, while some years showed weaker durability, Estee Lauder demonstrates good ability during most years with increasing EPS.

Dividends Well Covered by Cash Flow?

Explain the criterion for Estee Lauder Companies (EL) and why it is important to consider

Dividends Well Covered by Cash Flow assesses if a company's dividend payments are adequately supported by its free cash flow. This signifies sustainable dividend policies and financial health.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends refer to the consistency of a company in paying dividends at a level that either remains constant or increases over time.

Based on the given data, Estee Lauder Companies (EL) experienced a significant drop in its dividend per share in multiple years. The dividend per share dropped by around 21% from $1.54 in 2016 to $1.4 in 2017 and by again approximately 16% from $1.77 in 2018 to $1.49 in 2019. These fluctuations in payments can be concerning for income-oriented investors who seek stability. The good trend observed is the strong recovery and overall upward trajectory, but occasional significant drops indicate some level of instability in short-term dividend expectations. Investors must weigh this information, understanding it signals potential inconsistency or adjustment in the company's cash flow management.

Dividends Paid for Over 25 Years?

Evaluating whether Estee Lauder Companies (EL) has paid dividends consistently over the past 25 years. This tracks the company's commitment to shareholder returns.

Estee Lauder Companies (EL) has consistently paid dividends every year from 1998 to 2023. This indicates a strong commitment to returning value to shareholders. The trend shows a steady increase in dividends per share from $0.085 in 1998 to $2.64 in 2023. This upward trajectory is a positive sign of financial health and profitability. A sustained dividend payment over 25 years demonstrates solid financial management and reliability, making Estee Lauder an attractive option for income-focused investors. Continued dividend growth adds to investor confidence in the company's future earning potential.

Reliable Stock Repurchases Over the Past 20 Years?

Explain the criterion for Estee Lauder Companies (EL) and why it is important to consider

This data shows that the number of Estee Lauder's shares has consistently decreased from 469,400,000 in 2003 to 357,900,000 in 2023. It indicates that Estee Lauder has repurchased shares in numerous years, suggesting reliable buyback activity across the last two decades, except for periods like 2009-2011 and 2018. This average annual reduction rate of 1.3302% in outstanding shares demonstrates Estee Lauder's consistent and shareholder-friendly approach by reducing the total share count. However, there are years, such as 2008 to 2009, where an anomaly shows an increase in shares, which merits further analysis. Overall, a long-term trend of share repurchases typically returns capital to shareholders, enhances earnings per share, and reflects management's confidence in the company's prospects, which is positive.