Last update on 2024-06-27

Legrand (LRC.F) - Dividend Analysis (Final Score: 6/8)

Explore the dividend stability and performance of Legrand (LRC.F) with our in-depth 8-criteria analysis, featuring historical data, yield, and payout ratios.

Short Analysis - Dividend Score: 6

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

Legrand's dividend performance is analyzed using an 8-criteria system and graded a score of 6 out of 8. The company's dividend yield (2.0204%) surpasses the industry average (1.57%), showing strong income potential. It boasts a 9.34% average dividend growth rate over 20 years and a conservative 26.74% payout ratio. However, its cash flow coverage is not consistently robust, and while it has increased dividends overall, one instance of a >20% drop occurred. Legrand has paid dividends for 11 years, falling short of the 25-year metric, and shares have seen inconsistent buybacks. Its performance is solid but displays potential volatility.

Insights for Value Investors Seeking Stable Income

Given Legrand's strong dividend yield, promising growth rate, and conservative payout ratio, it seems a relatively stable choice for income investors seeking moderate risk. However, its inconsistent cash flow coverage and relatively short dividend history could be concerning for those seeking long-standing, stable options. Investing in Legrand may suit those who are willing to accept some degree of unpredictability for the potential of higher dividends. Proceed with caution and monitor performance regularly.

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?

Analyzing the dividend yield is crucial because it shows the annual dividend income generated by the company relative to its stock price, reflecting the returns obtained by investors.

Legrand's dividend yield of 2.0204% is notably higher than the industry average of 1.57%, indicating strong income-generating potential for investors. Historical data reveals that Legrand's yield fluctuated, showing significant peaks in specific years, such as 2020 (3.7664%) and 2022 (4.3375%). The company's yield often outpaced the industry average, suggesting persistent investor-friendly policies. For instance, in 2022, Legrand's 4.3375% yield far exceeded the 1.39% industry average. Thus, Legrand is a robust option for income-focused investors, consistently delivering superior dividend returns.

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

The Dividend Growth Rate is higher than 5% in the last 20 years

Upon reviewing the dividend per share ratio for Legrand (LRC.F) over the past 20 years, it can be observed that the average dividend growth rate is approximately 9.34%. This trend is indicative of a generally positive growth in dividends distributed to shareholders. However, there are notable fluctuations such as the sharp decrease in 2017 and 2021, as well as significant increases in 2018 and 2022. Despite these anomalies, the long-term average growth rate of 9.34% exceeds the 5% threshold, which is favorable for potential and existing investors. The irregularities in the dividend growth rate suggest that while Legrand has a robust ability to increase its dividends, investors should also be cautious of potential volatility in its dividend policies.

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

The average payout ratio measures the portion of earnings paid out as dividends to shareholders, a key indicator of dividend sustainability.

The data reveals an average payout ratio of 26.74% over the last 20 years for Legrand (LRC.F), which is significantly below the 65% threshold. This indicates that Legrand has been distributing a relatively conservative portion of its earnings as dividends. Such a trend is favorable as it suggests that the company retains sufficient earnings for reinvestment or to cushion against economic downturns, enhancing financial stability and growth. Crucially, a lower payout ratio underscores the company's potential to sustain or even increase dividends in the future, a positive signal for dividend-seeking investors.

Dividends Well Covered by Earnings?

Explain the criterion for Legrand (LRC.F) and why it is important to consider

Dividends per Share covered by Earning per Share

Dividends Well Covered by Cash Flow?

Dividend coverage by cash flow measures how well a company's free cash flow can cover its dividend payments. It's an important indicator of the sustainability of dividend payments and a company's ability to generate enough cash to meet its commitments while still investing in growth. A coverage ratio above 2 (or 200%) is generally considered healthy, indicating that the company generates more than enough cash to cover its dividend payout.

Over the years, Legrand's dividend coverage by free cash flow shows a mixed trend. Early years such as 2003 and 2004 have significantly low coverage ratios, almost negligible. This dramatically improves by 2007, demonstrating a considerable improvement by reaching 25.89%. However, the years following this period fluctuate without reaching an ideal coverage of over 2 (or 200%). The ratios in 2012 and later years consistently hover around the 30-50% range. This suggests that Legrand maintains a moderate coverage but hasn't achieved the desirable high coverage ensuring robust dividend sustainability. While not extremely risky, shareholders should remain cautious as the coverage isn't exceptionally strong.

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.

Analyzing the data from 2003 to 2023, Legrand shows the following dividend per share record: [0, 0, 0, 0, 0, 0, 0, 0, 0, 0, 1, 1.05, 1.1, 1.15, 0.791, 1.26, 1.34, 2.76, 1.42, 3.3, 1.9]. The year with the largest decline was 2018, where Legrand's dividend dropped to 0.791, which is approximately a 31.22% decline from the previous year (1.15). Therefore, one instance of deviation breaks the 20% stability criterion. Legrand's inconsistent dividends reflect irregularities in cash flows or earnings, offering less predictability for income-focused investors. However, the overall upward trend suggests potential for recovery and growth.

Dividends Paid for Over 25 Years?

A company that has consistently paid dividends for over 25 years indicates stability and a commitment to returning value to shareholders.

Based on the provided data, Legrand (LRC.F) has not paid dividends for over 25 years. The earliest recorded dividend payment was in 2013 at €1 per share, and dividends have been paid consistently for the last 11 years. However, achieving the 25-year mark is crucial for long-term investors seeking proven reliability. The trend shows an increasing dividend per share over the years, which is a positive sign of the company's growth and willingness to return profits to shareholders. Yet, the payout history does not meet the long-standing criterion of 25 years, suggesting that while Legrand demonstrates promising growth, it does not yet have the extensive dividend-paying track record that some conservative investors may prioritize.

Reliable Stock Repurchases Over the Past 20 Years?

Share repurchases refer to a company buying back its own shares from the marketplace. This can indicate that the company believes its shares are undervalued, aims to reduce the number of outstanding shares to boost earnings per share (EPS), or wants to return capital to shareholders in a tax-efficient manner.

Over the last 20 years, Legrand has demonstrated a somewhat unpredictable pattern in share repurchases. Notably, significant repurchases occurred in years such as 2006, 2008, 2011, 2012, 2016, 2019, 2021, and 2022, highlighting an opportunistic approach. The average repurchase rate over this period is -8.0063%, suggesting that while buybacks were conducted, their impact on the total share count was modest at best. Specifically, years 2006, 2008, 2011, 2012, and 2019 displayed a reduction in share count attributable to aggressive repurchase activities. Despite some positive efforts, inconsistency and limited impact raise red flags about their reliability as a regular capital return strategy.