Last update on 2024-06-27

Essilorluxottica (ESL.DE) - Dividend Analysis (Final Score: 5/8)

Essilorluxottica (ESL.DE) dividend analysis reveals a 5/8 score for dividend performance worth considering. Explore the firm's dividend stability and growth insights.

Short Analysis - Dividend Score: 5

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

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.

The dividend yield of EssilorLuxottica (1.8158%) is significantly higher than the industry average of 0.67%. This trend indicates a positive outlook for investors seeking regular income from dividends. Over the last 20 years, the company has shown fluctuations in dividend yield but has maintained a higher average yield compared to the industry. This trend suggests that EssilorLuxottica has been more committed to returning value to shareholders through dividends. Moreover, the increasing dividend per share, particularly over the last few years (from €0.7011 per share in 2020 to €3.23 per share in 2023), supports this trend. Therefore, the consistently high dividend yield, in relation to both its stock price and the industry's average, reflects a shareholder-friendly strategy that could attract income-focused investors.

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

Examining the Dividend Growth Rate over the last 20 years allows investors to understand the company's ability to consistently increase its dividend, reflecting financial health and shareholder value.

The Dividend Ratio numbers show significant volatility over the period from 2003 to 2023. Particularly, some years exhibit drastic changes like -100% in 2019 and -8.3584% in 2021, indicating dividend cuts. The average dividend ratio of 14.63% might initially suggest positive growth, but the extreme variation, including some negative values, reveals inconsistency. Moreover, the last data point for 2023 is 28.6853%, suggesting a substantial hike. However, the inconsistencies negate a steady growth rate of 5% per annum in the last 20 years. This trend is concerning as it indicates instability in dividend payouts. The company may struggle with sustaining payouts consistently.

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

The average payout ratio is an important indicator showing the proportion of earnings a company pays to its shareholders in dividends. Maintaining a ratio below 65% suggests a balance between rewarding shareholders and retaining earnings for growth.

For Essilorluxottica (ESL.DE), the average payout ratio over the last 20 years is approximately 39.16%, which is comfortably below the 65% threshold. This is a favorable trend as it indicates the company is paying out a reasonable portion of its earnings as dividends while retaining enough to reinvest in its growth and operations. The only anomaly appears in 2020, likely due to extraordinary circumstances such as the COVID-19 pandemic. With this singular exception, the trend is consistently positive, enhancing its attractiveness to dividend-focused investors.

Dividends Well Covered by Earnings?

Examining whether dividends are well covered by earnings involves comparing Earnings Per Share (EPS) to Dividends Per Share (DPS). This criterion ensures the company's ability to sustain dividend payments.

Given the data, let’s analyze if Essilorluxottica's dividends have been well covered by earnings over the past two decades. We compare EPS against DPS to see how well earnings can cover dividend payments. In 2008, the cover ratio was 34.06%. This trend persists until 2014, oscillating between 21.74% to 34.58%. From 2015 onwards, a noticeable improvement is seen. In 2016, the cover ratio rises to 42.07%, and peaks exceptionally high in 2020 with a cover ratio of 367.45%. Most recent figures from 2023 show a cover ratio of 63.23%. Despite some years with no dividend payments, the recent trend indicates strong coverage. Conclusively, the data shows an overall improvement, suggesting increased financial viability and prudent management in recent years. This trend is good as it demonstrates a growing buffering capacity to distribute dividends out of its earnings, indicating the company’s robustness.

Dividends Well Covered by Cash Flow?

Evaluating if dividends are well covered by cash flow is crucial as it shows the company's ability to sustain and possibly grow its dividend payouts. A higher ratio implies lesser risk to dividend sustainability.

Over the past 20 years, EssilorLuxottica's free cash flow has seen a remarkable increase, rising from €392.2 million in 2003 to nearly €3.33 billion by 2023. Conversely, dividend payout amounts have also grown but at a different pace. For instance, in 2003, the dividend payout amounted to €58.8 million, increasing to €487 million by 2023. However, the percentage of dividends covered by cash flow fluctuates significantly. In the early 2000s, a viable coverage ratio is seen, such as 25.3% in 2004 and 35.6% in 2005, indicating a comfortable buffer for dividend payouts. A notable drop is observed in 2016, with 8.8%, which could be attributed to strategic reinvestment decisions or the effects of mergers and acquisitions, such as the 2018 merger of Essilor and Luxottica. Recent years reflect inconsistent momentum, with 2021 at a low of 3.9% but recovering to 14.6% by 2023. Such fluctuations suggest the possibility of operational challenges or substantial reinvestments. Despite this, the overall trend in the substantial free cash flow assures potential and easing opportunities for dividend stability. Overall, while there is room for improvement in maintaining consistent coverage, EssilorLuxottica shows a positive long-term trajectory in enhancing free cash flow, which bodes well for dividend sustainability. Given the historical depth and recent shifts, a cautious but optimistic outlook is advised regarding its dividend coverage trend.

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.

Essilorluxottica has displayed considerable fluctuations in its dividend per share (DPS) over the past 20 years. Although the company started its dividend payments in 2008, there have been notable drops thereafter. For example, in 2019, 2020, and early years from 2003 to 2007, there were no dividend payments. Specifically, in 2019 and 2020, the dividend per share dropped to 0 from previous highs. This suggests periods of instability which is a potential red flag for income-seeking investors who rely on steady dividend streams. The increases seen, such as in recent years up to 2022 and a predicted substantial rise in 2023, provide some respite with dividends climbing to 3.23, but the inconsistency overall takes a toll. Hence, while the recent trend is positive, historically this trend may be viewed as bad for meeting the criterion of stable dividends.

Dividends Paid for Over 25 Years?

Assessing whether a company has paid dividends for over 25 years gives insight into its stability and shareholder-oriented management.

The dividend history for Essilorluxottica (ESL.DE) shows a mixed track record over the past 25 years. Dividends were resumed consistently from 2008 to 2017, the payouts were halted in 2018 and 2019, likely due to corporate activities such as mergers or restructuring (Essilor and Luxottica merged in 2018). Dividends resumed in 2020 and increased significantly in the following years, reaching as high as €3.23 per share in 2023. While they do not meet the 25-year criterion, the escalating payments in recent years indicate a positive trend and a strong commitment toward shareholders post-merger. This recent trend is generally good, albeit short of the long-term 25-year mark stakeholders might seek.

Reliable Stock Repurchases Over the Past 20 Years?

Explain the criterion for Essilorluxottica (ESL.DE) and why it is important to consider

Reliable stock repurchases indicate the company's strategic initiative to provide value to shareholders by reducing the number of outstanding shares, therefore increasing the ownership stake of current shareholders. It signals management's confidence in the company's future performance and its commitment to returning capital to shareholders. A consistent buyback program over 20 years demonstrates financial stability and strategic alignment. In terms of Essilorluxottica, examining the number of shares from 2003 to 2023, we see notable repurchases in years like 2006, 2007, 2008, 2009, 2011, and 2023 with an average buyback rate of 4.63% over these years. However, it is essential to also note the periods of share increases, particularly the sharp rises in recent years, which offset earlier repurchases. While the company has shown a willingness to engage in buybacks, these increases suggest capital raises or acquisitions. This mixed pattern indicates that although there have been determined repurchase efforts, the overall impact on reducing share count has been limited. Such a trend suggests a need for investors to delve deeper into the context of these buybacks and additional share issuances.