Last update on 2024-06-28

Galp Energia SGPS (GZ5.F) - Dividend Analysis (Final Score: 4/8)

Analyze Galp Energia SGPS (GZ5.F) dividend performance and stability using an 8-criteria scoring system. Get insights and learn more with detailed analysis.

Short Analysis - Dividend Score: 4

We're running Galp Energia SGPS (GZ5.F) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

The dividend analysis of Galp Energia SGPS (GZ5.F) shows a mixed performance. The company's current dividend yield is 3.982%, which is lower than the industry average of 5.02%, despite showing resiliency in fluctuating market conditions. The average annual growth rate of dividends exceeds 5%, but it's highly variable, indicating instability. The payout ratio over the years suggests that dividends have been well-covered by earnings, although there have been years with negative payout ratios. The company's dividends have generally been well-covered by cash flow, but there has been significant volatility. Galp Energia has not maintained stable dividends since inception, with several notable drops in dividend payments over the past 20 years. The company does not meet the 25-year criteria for consistent dividend payment, having started its dividend payments in 2007.

Insights for Value Investors Seeking Stable Income

Galp Energia SGPS shows some positive signs, particularly its ability to recover and maintain dividends in challenging market conditions. However, the overall inconsistency in dividend growth, coverage by earnings and cash flow, and its relative short history of dividend payments compared to the 25-year criterion suggest that it may not be the best option for investors seeking stable and high-yield dividends. It may be worth considering for investors who can tolerate volatility and are looking for potential growth, but careful monitoring is advised.

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 represents the ratio of a company's annual dividend to its share price. It measures how much cash flow an investor is getting for each dollar invested in an equity position. A yield higher than the industry average often suggests a strong dividend policy.

Galp Energia SGPS (GZ5.F) currently has a dividend yield of 3.982%, which is lower than the industry average of 5.02%. Analyzing the trends over the last 20 years, Galp Energia's dividend yield has fluctuated significantly, peaking at 7.0838% in 2021 and dipping as low as 1.2313% in 2011. The stability from 2016 onwards, with yields consistently above 3%, suggests some reliability in dividend payments. Even though the present yield is below the industry standard, it's important to note that Galp Energia has shown resilience, particularly with its notable yield during the critical market periods of 2018 (6.2362%) and 2021 (7.0838%). Still, the current figure being lower than the industry average might raise concerns among investors seeking high-yield investments. However, for those interested in growth or stability more than just yield, this trend might not necessarily be a bad indicator.

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

The Dividend Growth Rate (DGR) measures the annualized percentage rate of growth of a company's dividend over a specified period, typically indicating a company's financial health and commitment to returning value to shareholders.

Analyzing the dividend per share ratio for Galp Energia SGPS (GZ5.F) between 2003 and 2023 shows significant volatility with negative years and exceptionally high positive years. For instance, years like 2012, 2014, 2015, 2016, and 2020 experienced remarkable positive jumps, but were also offset by major declines such as in 2008 and 2020. The mixed positive and negative growth rates imply inconsistent dividend performances. The average dividend ratio sits at approximately 6.22%. Although this figure surpasses the 5% criterion, the extreme variability, including years at -43.04% and +128.57%, points towards instability. Therefore, despite achieving a critical 5% average over 20 years, maintaining this trend might be challenging—a concerning prospect for investors seeking steady dividend growth.

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

Explain the criterion for Galp Energia SGPS (GZ5.F) and why it is important to consider

The average payout ratio of a company provides insight into how much of a company's earnings are being distributed to shareholders as dividends. A payout ratio lower than 65% is generally considered healthy, suggesting that the company retains enough earnings for growth and unexpected expenses while still rewarding shareholders. A consistently high payout ratio might indicate that the company is overextending itself, which can be risky for future growth and sustainability.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings. The payout ratio (dividends per share divided by earnings per share) should ideally be less than or equal to 1. A ratio above 1 means the company is paying out more in dividends than it is earning, which is not sustainable in the long term.

Reviewing the data from 2016 to 2023, it is apparent that Galp Energia has had varied success in covering dividends with earnings. Notably, in 2017 and 2018, the payout ratios were 0.6737 and 0.9512, respectively, suggesting a good balance between dividends and earnings. However, in 2020, the EPS was negative (-0.66), resulting in an unsustainable payout ratio of -0.5814. Despite this, the company showed a marked improvement in 2021 and 2022, with ratios of 0.2818 and 0.3397 respectively, indicating much healthier coverage. The 125.0 ratio in 2021 is an anomaly likely due to some accounting or reporting anomaly particularly given the next year returns to a more reasonable ratio. Overall, Galp Energia has demonstrated a commendable recovery and stability in recent years, which bodes well for dividend sustainability. This trend can be considered generally good though vigilance is still warranted due to the potential volatility in earnings.

Dividends Well Covered by Cash Flow?

Criterion 3 assesses whether a company's dividends are well-covered by its free cash flow. This measurement indicates the company's ability to sustain dividend payments through its operating cash flow, signifying financial health and efficient cash usage.

For 2017 and 2018, free cash flow significantly surpassed dividend payouts, with coverages of 0.806 and 1.398, respectively. However, the values dropped in fluctuating patterns, with 2019 covering dividends just 0.799 times and remarkable recovery in 2020 with 1.314 coverage. 2021 exhibited strong coverage at 1.824, indicating robust cash flow relative to dividends. The sharply dropped coverage in 2022 and 2023, to 0.210 and 0.268, respectively, raises concerns. These trends indicate volatility in cash flow relative to dividends, highlighting potential future sustainability issues.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividends over a long period helps investors predict future income, ensuring a reliable and consistent return from their investments.

Galp Energia SGPS's dividend per share history over the past 20 years indicates several fluctuations. Notably, there were significant drops in dividend payments in 2008 (30.35% drop from €0.456 to €0.3176), 2009 (27.50% drop from €0.3176 to €0.2303), and in 2016 (20.37% drop from €0.6737 to €0.3837). These fluctuations suggest a lack of stability, which might be seen as unfavorable for income-seeking investors looking for consistent dividend payments.

Dividends Paid for Over 25 Years?

Assessing whether a company has paid dividends for over 25 years is essential. It indicates the company's consistency and commitment to returning value to shareholders. A long history of dividend payments can symbolize financial stability and robustness.

Based on the given data for Galp Energia SGPS (GZ5.F), the company does not appear to have a track record of paying dividends for over 25 years. Their dividends commenced in 2007, starting with €0.456 per share. The ability to pay and possibly grow dividends for over the past 17 years provides a reasonable track record but does not meet the 25-year criterion. Although the trend has shown relative stability and growth, with dividends peaking at €0.85 in 2018 before seeing some fluctuations, such as €0.6 in 2021 and then slightly lower at €0.53 in 2023, it does indicate a commitment to shareholder returns. However, this history is short by 8 years to meet the 25-year benchmark.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable Stock Repurchases Over the Past 20 Years

Stock repurchases, or share buybacks, are significant as they can signal the company's confidence in its future prospects, improve financial metrics such as earnings per share (EPS), and return capital to shareholders. Investors often look positively on reliable and consistent stock repurchase programs because they can increase the ownership stake of existing shareholders and signal strong financial health.