Last update on 2024-06-27

E.ON (EOAN.DE) - Dividend Analysis (Final Score: 2/8)

E.ON's (EOAN.DE) dividend analysis reveals an inconsistent track record. With a final score of 2/8, the company's dividend policy struggles to meet key criteria.

Short Analysis - Dividend Score: 2

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

E.ON's dividend policy was evaluated against 8 key criteria, getting a score of 2. The company’s current dividend yield of 4.1975% is higher than the industry average and has shown some stability recently. However, the dividend growth rate over 20 years is below the desirable 5%, and the average payout ratio is high at 80.58%, questioning sustainability. Earnings and cash flow coverage of dividends have been inconsistent, and there is significant fluctuation in actual dividend payments, making them unreliable. E.ON has paid dividends for only 23 years, just shy of the 25-year benchmark. Lastly, stock repurchase activity is low, further stressing the unpredictability of returns.

Insights for Value Investors Seeking Stable Income

Given E.ON's inconsistent dividend growth and high payout ratio, its dividend policy appears unstable and may not offer reliable, long-term returns. While the current dividend yield is attractive, the lack of consistent earnings and cash flow coverage, coupled with minimal stock repurchase activity, makes it a risky option for income-focused investors. It might be better to explore more stable alternatives unless you are willing to take on these risks for the potential high yield.

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 indicates how much a company pays out in dividends each year relative to its share price. For investors looking for steady income, a higher dividend yield signifies better return on investment.

E.ON's current dividend yield of 4.1975% being higher than the industry average of 3.75% is a positive indicator for income-focused investors. Analyzing historical data, E.ON has had a variable yield, peaking as high as 15.9038% in 2008 and as low as 2.3179% in 2017. The company has managed to maintain a yield typically above or close to the industry average, implying they prioritize returning value to shareholders. Despite fluctuations, recent stability around the 4-5% mark indicates a potential strengthening. Given its current yield being higher than average and stock price stability between €9.06 to €12.16 in the past five years, this trend appears favorable for yield-seeking investors if sustained.

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

The Dividend Growth Rate represents the annualized percentage rate of growth of a company's dividend. It is an important metric as it informs investors about the company’s ability to increase its dividend payouts consistently over time, a sign of financial health and shareholder value.

Analyzing the dividend growth rate of E.ON (EOAN.DE) over the last 20 years reveals significant volatility. There are notable instances of negative growth or no dividends at all, such as in the years 2009, 2010, and 2016, which indicate challenges the company faced. The average dividend ratio over the entire period stands at 3.35%, which is below the 5% threshold. Whilst there are moments of substantial growth, such as in 2018 with a 185.71% increase, these instances are anomalous and don’t represent a consistent trend. Given this inconsistency and the average growth rate falling short of 5%, the dividend growth performance is, therefore, considered poor as it fails to meet the desired criterion of sustained growth.

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

The payout ratio is an important indicator of dividend sustainability. A payout ratio lower than 65% implies that the company is reinvesting a significant portion of its earnings back into its growth, rather than paying it all out as dividends. This affords room for financial flexibility and potential income protection during economic downturns.

The average payout ratio for E.ON over the last 20 years is approximately 80.58%. This is significantly higher than the 65% benchmark, suggesting that E.ON has often paid out a large portion of its earnings as dividends. In several years, particularly in 2008, 2010, 2011, 2012, 2013, and 2022, the payout ratio even exceeded 100%, meaning the company paid out more than it earned, potentially tapping into reserves or raising debt. While high payout ratios can be attractive for income-seeking investors, they may undermine the company's reinvestment opportunities and its financial resilience. Thus, the high average payout ratio demonstrates a commitment to shareholder returns but raises questions about long-term financial sustainability.

Dividends Well Covered by Earnings?

Dividends being well covered by earnings per share indicates a company's ability to maintain or increase its dividend payments while sustaining business growth and investing for future returns.

The coverage ratio results show fluctuating patterns over the years for E.ON (EOAN.DE). A denominator below 1 indicates that dividends exceed earnings, while a value above 1 suggests dividends are well covered. Over the two decades: 1. **High Values** (2008 - 6.03; 2023 - 2.58): Signify insufficient earnings during these years yet a commitment to continue dividends, potentially through reserves or external funding. 2. **Negative Values** (2011, 2014, 2015, 2016): EPS was negative, indicating losses and thus negative dividend coverage, revealing significant economic challenges. 3. **Other Fluctuations:** 2012 (approx. 0.86), 2020 (approx. 1.18) display near or better coverage indicating better alignment or performance. Throughout, the alternation between high, negative, and modest figures often signal an unpredictable dividend reliability from earnings alone. Not stable coverage indicating potential financial instability. A more consistent trend near or above 1 would be preferable for investor confidence in sustainable dividends.

Dividends Well Covered by Cash Flow?

Cash flow is essential for a company to cover its dividends without depleting its reserves.

Analyzing the free cash flow (FCF) and the dividend payout amounts from 2003 to 2023 reveals a concerning trend for E.ON. It is crucial for dividends to be well-covered by cash flow to ensure sustainability. A dividend covered by cash flow ratio above 1 implies the company generates enough cash to afford dividends. However, E.ON's figures reflect inconsistent performance over the years. Notably, in 2008, 2015, 2017, 2019, 2021, and 2023, FCF failed to cover the dividends, indicating financial stress and potential sustainability issues. This volatile trend suggests investors should exercise caution.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividends is crucial for investors who seek reliable income streams. Consistent dividends indicate healthy earnings and effective management.

Upon reviewing the dividend trends for E.ON (EOAN.DE) over the past two decades, it is evident that there have been significant fluctuations in its dividend payments. The dividend dropped from €4.1 in 2008 to €1.5 in 2009, which is a drastic decline of over 63%. Another notable drop occurred between 2013 and 2014 from €1.1 to €0.6, marking a fall of 45%. Stability in dividend payments suggests a company’s resilience and commitment to returning value to shareholders even during economic downturns. Unfortunately, E.ON's track over the past 20 years shows inconsistency, highlighting potential volatility and financial adjustments. This might concern income-focused investors who prioritize steady and predictable dividend income. However, it's essential to acknowledge that other factors such as market conditions, regulatory changes, and strategic realignments could have influenced these variations.

Dividends Paid for Over 25 Years?

Dividends paid for over 25 years reflect a company’s stability and commitment to returning value to shareholders.

E.ON (EOAN.DE) has been paying dividends consistently since the year 2000, providing a track record of 23 years. Despite facing challenges and fluctuations in its financial performance, E.ON has shown resilience, especially after ongoing issues around 2009, 2015, and 2017 where dividends declined sharply. This demonstrates a long-term commitment to shareholder returns. However, the record does not fully satisfy the 25-years benchmark. This trend is somewhat positive but still falls short by 2 years, thus it won’t be regarded entirely as a pass under this criterion.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable Stock Repurchases Over the Past 20 Years?

The number of shares for E.ON (EOAN.DE) shows significant increases over the past 20 years, with particular reductions noticeable in 2007 and 2008. These two years saw a reduction in the number of shares from 1,977,000,000 in 2006 to 1,862,000,000 in 2008, suggesting share repurchase activity. However, the overall trend from 2003 to 2023 shows an increase from 1,962,000,000 to 2,611,000,000 shares.\n\nThe average repurchase value of 1.5108 is relatively low, indicating minimal repurchasing activity overall. This trend portrays a bad scenario for the criterion of reliable stock repurchases, as share repurchases appear to be infrequent and not consistent over the years.