Last update on 2024-06-28

LOreal (LOR.DE) - Dividend Analysis (Final Score: 4/8)

Analyze L'Oreal (LOR.DE)'s dividends with an 8-criteria scoring system. Final dividend score: 4/8. Discover insights on yield, growth, payout ratio, and more.

Short Analysis - Dividend Score: 4

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

L'Oréal's dividend policy gets a score of 4/8 based on various criteria. Its dividend yield of 2.6537% is higher than the industry average of 1.82%, making it attractive for dividend-seeking investors. The average annual dividend growth rate over 20 years is 16.11%, but this includes some inconsistent and negative growth periods. The payout ratio has been below 65%, suggesting control over dividend sustainability. Dividend coverage by earnings and cash flow has varied, with more recent years showing improved coverage, indicating potential sustainability. Although L'Oréal has only paid dividends consistently since 2009, its dividend history shows growth. Stock repurchases have been inconsistent but show a positive trend from 2019 onwards.

Insights for Value Investors Seeking Stable Income

L'Oréal might be worth considering for investment if you prioritize dividend income and are okay with some historical inconsistencies. The high dividend yield and recent improvement in coverage make it appealing, but the unstable growth rate and less than stellar stock repurchasing pattern may introduce some risk. Overall, L'Oréal seems promising for the future, but due diligence is recommended.

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 compared to its share price. It indicates how much cash flow you're getting for each euro invested in an equity position.

For L'Oréal (LOR.DE), the current dividend yield of 2.6537% is greater than the industry average of 1.82%. This substantial gap signifies that L'Oréal is generating higher returns on the investment relative to its industry peers just through dividend payments. Examining historical data, L'Oréal's dividend yield has exhibited low points, specifically a dip to 0% early 2000s followed by a rise to the highest level of 2.6537% . Historically, the company's yield was generally closer to the industry average, experiencing declines such as 0.9482% and fluctuations year over year. The consistently increasing stock prices (a rise from €65 in 2003 to €452.2 in 2023) mainly indicate capital gains which suppressed dividend yield ratio theoretically by ratio of Dividend/Price however company increased dividends per share (from 1.38€ in 2008 to 12€ in 2023). This trend bodes well for dividend-seeking investors and reflects positively on L'Oréal's financial health and profitability. Overall, L'Oréal's higher yield is attractive for those prioritizing income and adds an extra layer to potential total returns.

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

The Dividend Growth Rate measures the annualized percentage growth rate of a company's dividend payments over a specified period, typically expressed as a percentage. A rate above 5% is considered desirable as it often indicates a company's healthy earnings growth and commitment to returning profits to shareholders.

Looking at L'Oréal's Dividend Per Share Ratio growth over the past two decades, we see remarkably strong figures in specific years, especially 2021 and 2023, which show extreme growth of 110.39% and 150%, respectively. However, this data also presents high variability with negative growth like -50.6173% in 2022. While the average dividend growth rate of 16.11% is well above the 5% threshold, the inconsistency suggests periods of dividend instability. In conclusion, although the average inclination is positive and promising, the negative spikes warrant further investigation to ensure the robust long-term sustainability of dividend growth.

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

Explain the criterion for LOreal (LOR.DE) and why it is important to consider

A key parameter in evaluating the sustainability of a company’s dividend payout is the payout ratio. The payout ratio indicates the percentage of earnings a company distributes as dividends to shareholders. It is crucial to consider an average payout ratio lower than 65% as it ensures that the company retains sufficient profits for growth and operational expenses. A high ratio can indicate financial instability or an overextension of finances. It is essential to assess these aspects over a substantial time frame, such as 20 years, to ascertain stability and trends.

Dividends Well Covered by Earnings?

A critical component in evaluating a company's dividend policy is its ability to cover dividends with earnings. This ensures that the company retains enough earnings to reinvest in its operations while still rewarding shareholders.

For L’Oreal (LOR.DE), the dividend coverage ratio fluctuates over the observed period. For instance, in 2011, the coverage was 0.520, demonstrating that earnings were insufficient to cover dividends comfortably. This trend continued sporadically, with coverage ratios like 0.425 in 2012 and 0.749 in 2013, indicating strain in dividend coverage. The periods around 2014 and 2020 showed that the dividends were entirely covered and sometimes even exceeded by earnings (coverage ratios of 1.012 and 1.271, respectively). However, in 2021 and 2022, lower coverage ratios (0.485 and 0.451) reveal potential concerns around sustainability. The recent spike in 2023 to over 1.038 suggests improved coverage, indicating better dividend sustainability. This fluctuating trend indicates a need for cautious optimism. While recent improvements are promising, inconsistent ratios in the past could signify risks that investors should monitor.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow mean the company's free cash flow exceeds or adequately covers the dividend payouts. This signifies a sustainable and safe dividend policy.

Over the observed period from 2003 to 2023, L'Oréal exhibits a highly favorable trend where its free cash flow consistently covers its dividend payouts. For instance, in 2023, the dividend coverage ratio stands at approximately 0.56, indicating that the dividends are well-supported by cash flow. This ratio stays safely below 1, which demonstrates good financial health and effective free cash flow management. Even during years where the free cash flow dipped slightly, the coverage remained strong, securing investor confidence in these dividends as being sustainable and prudent. Given these trends, L'Oréal's dividend policy appears robust and attractive to dividend-focused investors.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividends ensures reliable income for investors. It signifies the company's financial health and reduces the risk associated with fluctuating payouts, making the investment more predictable.

Analyzing L'Oreal's (LOR.DE) dividend history over the past 20 years reveals significant stability in their dividend payments. Since 2008, when dividends were reinstated, they have consistently increased, except for 2020 and 2021, where there were notable variations due to extraordinary dividends of €8.1 in 2020 and a sharp drop followed by a proximate recovery. The overall trend remains positive, and no year experienced a drop surpassing the 20% threshold. This stability looks highly favorable for income-seeking investors relying on predictable dividend yields.

Dividends Paid for Over 25 Years?

Assessing whether LOreal has consistently paid dividends for over 25 years.

L'Oréal has only actually been distributing dividends from 2009 onwards. Prior to that, for many years, there were no dividend payouts to shareholders. Examining the record, L'Oréal did not pay dividends consistently for over 25 years but had continuous payments for the last 14-15 years at least. This might not meet the exact criterion of distributing dividends over the span of 25 years, but during the recent years, the payout has shown an evident ascending trend reaching impressive values like 8.1 in 2020 and 12 in 2023.

Reliable Stock Repurchases Over the Past 20 Years?

This criterion looks at whether a company consistently repurchases its own stock, which can indicate strong financial health and a commitment to returning value to shareholders.

Over the past 20 years, L’Oréal (LOR.DE) has shown inconsistency in its stock repurchase program. Notably, large repurchases occurred in years such as 2011, 2015, and consistently from 2019 to 2023. There were, however, many years with no reported stock buybacks at all. The average number of repurchases, 2.1614, is relatively low. Despite recent consistent buybacks, the overall erratic pattern over two decades suggests only a moderate reliability in stock repurchases. While less frequent in earlier years, the trend is positive from 2019 onwards, indicating improved financial flexibility and shareholder value initiatives in more recent years.