Last update on 2024-06-27

Grupo Financiero Galicia (GGAL) - Dividend Analysis (Final Score: 4/8)

Evaluate Grupo Financiero Galicia's (GGAL) dividend stability and performance based on an 8-criteria scoring system, achieving a final score of 4 out of 8.

Short Analysis - Dividend Score: 4

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

Here is a quick snapshot of Grupo Financiero Galicia (GGAL) and its dividend practices based on an 8-criteria scoring system. The analysis reveals that GGAL's dividend yield is significantly lower than the industry average, and shows significant fluctuations in its dividend growth rate, making it unpredictable. The company's average payout ratio suggests a conservative but erratic approach. Although earnings have risen in recent years, historically, the dividends were not well covered by earnings or cash flows. Dividend payouts have been unstable since inception, with multiple years of zero dividends and inconsistent dividend policy over the past 24 years. Stock repurchases have been sporadic, showing an inconsistent capital management strategy. GGAL's dividend score stands at 4 out of 8.

Insights for Value Investors Seeking Stable Income

Based on the thorough analysis, GGAL might not be the best choice for income-focused investors looking for stability and reliability in dividends. The inconsistent dividend payouts, lower than industry average yields, and fluctuating coverage ratios indicate a high level of uncertainty and risk. Those seeking a more predictable income stream might want to explore other options with more stable and reliable dividend histories.

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 essentially the ratio of a company's annual dividend compared to its share price. It indicates how much income you are getting for each dollar invested in the stock. Higher dividend yield can be attractive to income-focused investors.

Grupo Financiero Galicia's (GGAL) dividend yield of 0.008% is significantly lower than the industry average of 2.76%. Over the past 20 years, GGAL has had fluctuating dividend yields that have generally remained below the industry average. For example, in 2011, GGAL had a yield of 0.1922%, while the industry average was 2.33%. This trend suggests that GGAL may not be a favored stock for dividend-seeking investors, indicating a weak performance in this particular criterion. The low yield may detract income-focused investors, making the stock less attractive in comparison to other industry players with higher yields.

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

Evaluate the Dividend Growth Rate for Grupo Financiero Galicia (GGAL) over the past two decades. This criterion is crucial for long-term investors seeking steady dividend income and capital appreciation.

The Dividend Ratios (YoY growth) from 2003 to 2023 shows extraordinary volatility, from enormous positive growth rates like 603.125% in 2022 to severe dips like -100% and -73.8019%. The average Dividend Ratio clocks in at 42.91%, which initially appears robust. However, the consistency and sustainability of these dividends are in question due to wide fluctuations year-to-year. The high variance makes it hard to ascertain a stable upward trend, essential for investors looking for reliable income streams. Consequently, this trend suggests an unpredictable dividend growth, posing heightened risk for income-focused investors. Given these traits, the average growth's attractiveness is diminished by its lack of reliability.

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

This criterion assesses whether a company’s payout ratio—defined as the proportion of earnings paid out as dividends—has averaged below 65% over a substantial period. A lower payout ratio usually indicates a sustainable dividend policy as the company retains more earnings for growth and operational needs.

The average payout ratio for GGAL over the last 20 years is -0.124, significantly below the 65% threshold. This trend is primarily driven by multiple years of zero payout ratios and an anomalously negative ratio in 2019. Such a low average suggests that the company is not overly reliant on profits to pay dividends, indicating a conservative and potentially sustainable dividend policy. Nonetheless, the negative and zero values warrant scrutiny, as it could also signify periods of insufficient earnings to cover dividend payments or financial distress.

Dividends Well Covered by Earnings?

Earnings coverage of dividends indicates whether a company's earnings are sufficient to cover its dividend payments. This is a pivotal measure of dividend sustainability and financial health.

From the provided data, it is apparent that for many years, Grupo Financiero Galicia's (GGAL) dividends were not well-covered by earnings, especially in the initial years. For instance, in 2003, 2004, 2006, etc., the Earnings per Share (EPS) was negative or too low, leading to zero or negligible dividend coverages. More recently, the situation appears to improve slightly, with EPS significantly rising past 2016 and EPS surpassing dividend payouts in magnitude. However, it's essential to highlight that the dividend payout still remains a very small portion of the EPS, hence a low dividend coverage ratio as indicated by the figures (e.g., 0.0004898551222859895 in 2023). The historical trends indicate inconsistent earnings, which makes the trend not optimal for dividend reliability. Nonetheless, the recent move to positive earnings and higher EPS bodes well for future dividend coverage potential.

Dividends Well Covered by Cash Flow?

The criterion 'Dividends Well Covered by Cash Flow' refers to how easily a company can pay dividends from its generated cash flow. It is important because it indicates financial health and sustainability.

Examining the free cash flow (FCF) and dividend payout amounts over the years for Grupo Financiero Galicia (GGAL), we notice fluctuations in the ratio of dividends covered by cash flow. In the years where FCF was negative, such as 2003 and 2017, the coverage ratio was either zero or negative, indicating that the company's operations did not generate enough cash to cover the dividend payouts. Conversely, in stronger years such as 2021 where FCF was incredibly high at 1.65 trillion ARS, the ratios show a better picture even though coverage dips slightly. The ratio peaked at 11.25% in 2023, showing improved coverage. This trend outlines a somewhat inconsistent ability to cover dividends with cash flow, suggesting that an analysis of operational efficiencies and economic conditions affecting FCF consistency is warranted. A well-covered dividend by cash flow ensures investor confidence and dividend sustainability.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividends over the past 20 years is crucial for income-seeking investors because it provides a predictable and reliable income stream. This is particularly important for retirees and others who rely on investment income to cover living expenses.

While Grupo Financiero Galicia shows some dividend growth recently, the overall trend over the past 20 years is highly unstable. Significant variability, including multiple years with zero dividends, particularly in the earlier part of the 20-year period, makes its dividend history unreliable. The absence of a decline by exactly 20% is moot given the periodic gaps in payments. Although the recent surge is promising, the earlier inconsistencies may concern long-term income-seeking investors.

Dividends Paid for Over 25 Years?

Examining whether a company has paid dividends continuously for over 25 years helps assess the reliability and stability of their dividend policy.

Grupo Financiero Galicia (GGAL) demonstrates a relatively inconsistent dividend payment history over the past 24 years. Starting from the year 2000 to 2002, and several intermittent years thereafter, dividends were not paid out. The payment amounts also appear extremely variable, with significant increases in recent years, specifically a jump to 1.12 in 2023 compared to previous amounts. This inconsistent pattern in Grupo's dividends indicates an unstable dividend policy, which may reflect an unpredictable cash flow or shifting financial priorities by the management. Potential investors seeking a stable income through dividends might be wary of such fluctuations.

Reliable Stock Repurchases Over the Past 20 Years?

Examining reliable stock repurchases over a 20-year period is crucial as it showcases the company’s capital management strategy and its commitment to returning value to shareholders.

Analyzing Grupo Financiero Galicia's (GGAL) number of shares over the last 20 years showcases sporadic stock repurchases during 2007, 2008, and 2021. Specifically, the number of shares decreased from 126,042,518 in 2006 to 124,442,363 in 2007, and from 124,140,700 in both 2009 and 2010, indicating no repurchase activity during these years. However, more recently, shares decreased from 147,539,062 in 2020 to 147,469,200 in 2021, indicating a stock repurchase. Overall, the average repurchase over the last 20 years is only 1.5378%, reflecting inconsistency in repurchase activities. While GGAL has engaged in stock repurchases, the frequency and extent are limited. This inconsistency could be seen as a lack of sustained commitment to returning value to shareholders, which makes the trend less favorable.