Last update on 2024-06-27

International Flavors & Fragrances (IFF) - Dividend Analysis (Final Score: 7/8)

Explore International Flavors & Fragrances (IFF) dividend analysis for 2023 with an impressive final score of 7/8. Comprehensive criteria evaluation included.

Short Analysis - Dividend Score: 7

We're running International Flavors & Fragrances (IFF) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

International Flavors & Fragrances (IFF) scored a 7 out of 8 in the dividend policy analysis. IFF's dividend yield of 4.0015% is above the industry average and has grown steadily over 20 years. However, there are concerns as the stock price has dropped, and the growth rate in dividends has been inconsistent despite an average growth rate above 5%. The average payout ratio of 48.67% is good but recent negative earnings are alarming. The dividends have been stable and consistent for over 25 years, giving confidence to income-focused investors.

Insights for Value Investors Seeking Stable Income

IFF has an attractive dividend yield and a long history of dividend payments, but the inconsistent growth rate and negative earnings in recent years are concerning. Potential investors should proceed with caution and investigate the reasons behind the declining stock price and fluctuating earnings before making an investment.

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 key indicator for income-focused investors as it represents the ratio of a company's annual dividend compared to its share price. A higher yield signifies a potentially higher income return on investment, but it must be viewed in context of the overall financial health of the company.

At 4.0015%, International Flavors & Fragrances' dividend yield is significantly above the industry average of 2.37%. Over the past 20 years, IFF has shown a steady increase in their dividend yield from 1.8041% in 2003 to the current level of 4.0015% in 2023. This suggests a commitment by the company to return capital to shareholders and signal strong financial health or growth prospects. However, the fact that the company's stock price has declined significantly from $150.65 in 2021 to $80.97 in 2023 also highlights potential valuation concerns and warrants closer scrutiny. The directive upward trend in dividends per share from $0.63 in 2003 to $3.24 in 2023 indicates a robust dividend policy, but it is imperative to check whether these increases are supported by equivalent earnings growth.

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

Dividend Growth Rate is a critical measure that reflects how much a company's dividend payments have increased over a specific period. A higher rate indicates a company's solid financial health and commitment to returning value to shareholders, making it a crucial factor for investors focused on income and growth.

Over the past 20 years, the dividend per share ratio for International Flavors & Fragrances (IFF) has fluctuated significantly. In 2003, the ratio was 5%, which peaked in 2007 at approximately 15.03% but has been on a declining trend after 2013, reaching only 1.25% in 2023. The average dividend ratio over these years is around 8.49%, which exceeds the 5% target but does not show a consistent upward trend. This inconsistency suggests volatility in the dividend growth rate, which could be a red flag for conservative investors seeking stable dividend increments. It also indicates that while IFF has the potential to pay higher dividends, macroeconomic factors, market conditions, or perhaps internal policy or profit reinvestment strategies may have influenced periods of lower payouts. Therefore, the trend isn't categorically 'good' despite meeting the average growth percentage due to its erratic nature over the long term. Investors should be cautious and investigate the underlying causes of such fluctuations.

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

The payout ratio measures the proportion of earnings paid out as dividends to shareholders. A lower payout ratio is usually preferred as it indicates that a company is retaining enough earnings for growth and expansion.

The average payout ratio for International Flavors & Fragrances (IFF) over the last 20 years stands at 48.67%, which is well below the 65% threshold. This is generally positive as it suggests that the company has maintained a disciplined approach to dividend payouts, ensuring sufficient earnings are reinvested back into the business. Notably, while there were spikes in the payout ratio in recent years, such as the anomalous 282.89% in 2021, these seem to be outliers possibly driven by exceptional circumstances. The overall trend indicates a prudent balance between rewarding shareholders and reinvesting for future growth.

Dividends Well Covered by Earnings?

Dividends well covered by earnings is measured by the dividend payout ratio, which is the proportion of earnings paid out as dividends to shareholders. A lower ratio indicates that dividends are easily covered by earnings.

The trend of IFF's earnings per share (EPS) and dividend per share (DPS) from 2003 to 2023 shows mixed results. Up until 2017, the dividend payout ratio remained relatively healthy, mainly below 50%, suggesting that the company was comfortably covering its dividends with earnings. However, from 2017 onwards, the payout ratio significantly increased. In 2017, it hit 71.4%, indicating that the company's margin to cover dividends was shrinking. By 2020 and onwards, the payout ratio became unsustainable, with 2021 showing a payout ratio of -436.83% and 2023 an even worse -322.11%. The latter years' negative ratios are alarming, showing that IFF's earnings have turned negative, making it impossible to cover the dividends through its profits. This is a bad trend for the company's financial sustainability.

Dividends Well Covered by Cash Flow?

This criterion examines if dividends are covered by the free cash flow generated by the company. It's important because it indicates the sustainability of dividends. A well-covered dividend is a sign of financial health and stability.

Based on the historical data of free cash flow and dividend payout amounts for International Flavors & Fragrances (IFF), it is evident that the coverage ratio fluctuates significantly. In years like 2003 and 2004, the coverage ratios were quite low at around 0.28, which indicates that dividends were not well-covered by cash flow. Years like 2021 and 2022 are particularly concerning: in 2021, the free cash flow massively outpaced dividends with a coverage of -7.43 due to negative cash flow, but it bounced back to 0.88 in 2023. This inconsistency suggests that while IFF has been able to cover its dividends in most years, the stability and predictability of this coverage are questionable. Investors should be cautious as this trend poses risks to the dividend's long-term sustainability.

Stable Dividends Since the Company Began Paying Dividends?

Explain the criterion for International Flavors & Fragrances (IFF) and why it is important to consider

Stable dividends over the past 20 years is a critical metric for income-seeking investors, as it provides assurance of consistent income streams. Analyzing the given dividend per share data from 2003 to 2023 for International Flavors & Fragrances (IFF), it is essential to identify any significant drops in the dividend. The provided data indicates incremental increases each year, with no drop exceeding 20%. The year-over-year progression shows that dividends grew from $0.63 in 2003 to $3.24 in 2023, reflecting consistent growth and financial stability. This trend is favorable for income-seeking investors as it ensures predictability and reliability in dividend payments.

Dividends Paid for Over 25 Years?

Explain the criterion for International Flavors & Fragrances (IFF) and why it is important to consider

Dividends paid over 25 years are a key indicator of a company's stability and commitment to returning value to shareholders. For IFF, the pattern from 1998 to 2023 shows a clear and consistent payment of dividends. Additionally, the dividend amount per share has incrementally increased from $1.49 in 1998 to $3.24 in 2023. This trend indicates a strong financial footing and a reliable return to investors, which is generally viewed positively in the equity markets.

Reliable Stock Repurchases Over the Past 20 Years?

A company's stock repurchase program, also known as a share buyback, can affect dividend payout and reliability. Examining stock repurchases over a long period like 20 years can provide insights into management's confidence and financial stability.

The data on the number of shares indicates that International Flavors & Fragrances (IFF) has occasionally engaged in stock repurchases but not consistently over the past 20 years. Significant repurchase years include 2005, 2006, 2007, 2008, 2009, 2014, 2015, 2016, and 2017. During these years, IFF reduced its outstanding shares, which could theoretically improve metrics like Earnings Per Share (EPS) as profits are distributed over fewer shares. An average repurchase of 7.1693 over 20 years shows moderate activity and suggests that while there have been periods of share reduction, they have not been highly reliable or consistent every year. This pattern is neither particularly good nor bad in isolation but should be considered alongside other financial metrics to evaluate the full impact on dividends. The increased shares in recent years (2021, 2022, and 2023) hint at stock issuance, which might be for funding acquisitions or other expenditures, potentially affecting dividend payouts negatively.