Last update on 2024-06-27

Lanxess (LXS.DE) - Dividend Analysis (Final Score: 5/8)

Analyze the performance and stability of Lanxess (LXS.DE) dividend policy rated 5/8 using an 8-criteria scoring system. Essential insights for dividend-focused investors.

Short Analysis - Dividend Score: 5

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

The dividend analysis of Lanxess (LXS.DE) evaluates its dividend policy based on 8 criteria. Lanxess has a relatively high dividend yield of 3.7011%, which is more significant than the industry average, making it attractive for yield-focused investors. However, its dividend growth rate is inconsistent, with periods of zero payouts and drastic variations in amounts, raising concerns for income-focused investors. Despite this, the company's payout ratio averages 25.53%, well below the 65% threshold, indicating good financial management and a focus on sustainability. While dividends are often well-covered by earnings, there are concerning periods where earnings weren't enough to cover dividends. Dividends are also generally covered by cash flow, but with notable periods of insufficient coverage. Additionally, Lanxess falls short in its long-term dividend stability and does not meet the 25-year benchmark for continuous dividend payments. Finally, while stock repurchase data wasn't provided in detail, reliable repurchase programs are also crucial for evaluating a company's financial health.

Insights for Value Investors Seeking Stable Income

Based on the provided analysis, Lanxess (LXS.DE) shows aspects of both strength and concern in its dividend policy. The high dividend yield and lower payout ratio are positives, indicating a strong return on investment and good financial management. However, the inconsistent dividend growth and periods of zero payouts may be a red flag for those seeking stable, growing dividend incomes. Investors should be cautious about investing purely based on current high yields, considering the historical volatility in growth and coverage rates. Therefore, for conservative, dividend-focused investors, it might be worth exploring other options with more consistent long-term performance. For those comfortable with some risk, Lanxess offers prospects of a high yield but requires close monitoring of its financial health and profitability.

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 financial ratio that shows how much a company pays out in dividends each year relative to its stock price. It is a significant parameter for income-focused investors as it highlights the return on investment in terms of dividend income.

Lanxess's current dividend yield of 3.7011% is substantially higher than the industry average of 2.37%, which indicates a strong dividend distribution relative to its peers. Over the past 20 years, Lanxess has seen its dividend yield fluctuate, with noticeable increases in 2008 (7.2833%) and a trend of moderately increasing yields afterward. Furthermore, despite significant stock price volatility — from peaks like €66.27 in 2012 to declines like €28.37 in 2023 — the company's recent decision to pay higher dividends signals a commitment to returning value to shareholders. This elevated dividend yield could portray Lanxess as an attractive option for yield-seeking investors. However, it's important to stay cautious of the company's future profitability to sustain these payouts. Today, the yield being at its highest could either highlight a positive strategic payout or mask concerns from inherent risks affecting stock prices.

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

The dividend growth rate measures the annualized percentage rate of growth of a company's dividend payments. A higher growth rate indicates better returns for investors over time.

Lanxess (LXS.DE) has shown an inconsistent dividend payout history over the last 20 years. The values fluctuate drastically, with some years like 2008, 2014, and 2016 showing negative values, which typically indicate a dividend cut or loss. The values for other years vary greatly, showing bursts in payments followed by years of stagnation or decrease. The presence of 0 values in multiple years highlights the absence of dividend payouts for those periods, raising concerns about the company's consistency in rewarding shareholders. The highest growth periods seem to be non-recurring events rather than a sustainable trend. With an average dividend ratio of 17.06%, the growth rate can be misleading due to the significant volatility. Given this inconsistency, the trend is not favorable and indicates red flags for prospective dividend-focused investors.

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

The Average Payout Ratio is a critical measure reflecting the percentage of earnings distributed to shareholders in the form of dividends. A ratio lower than 65% typically indicates that a company retains a significant portion of its earnings for growth and stability, which is a healthy sign for long-term investors.

For Lanxess (LXS.DE), the average payout ratio over the last 20 years was 25.53%, significantly lower than the 65% threshold. This is a positive trend, indicating that the company has maintained a healthy balance between rewarding its shareholders and retaining earnings for reinvestment into the company's growth and operations. Notably, even during diverse economic conditions over the years, Lanxess managed to keep its payout ratio controlled and generally low, aside from a few exceptional years where it exceeded 65% (e.g., 2009, 2014). This suggests prudent financial management and a focus on sustainability. Such a trend is generally favorable for long-term investors, hinting at robust financial health and strategic corporate governance. Additionally, periods of zero payouts in the early years could denote reinvestments into business transformation or restructuring activities at that time.

Dividends Well Covered by Earnings?

Dividends being well covered by the earnings is a crucial criterion because it indicates the company's ability to sustain its dividend payouts without putting financial strain on its operations. A well-covered dividend typically signifies financial health and investor confidence.

Analyzing the dividend coverage ratio of Lanxess (LXS.DE) from 2003 to 2023, several patterns emerge. First, during the earlier years (2003-2007), the company did not pay dividends, most likely due to insufficient earnings or a strategic decision to reinvest profits back into the business. Starting from 2007, dividends were introduced with increasing payouts over the years. In terms of coverage, concerning trends can be observed in the years 2011, 2013, 2014, and 2016, where EPS drastically dropped or even turned negative, like in 2008, 2013, and 2014. For instance, the dividend coverage was negative in 2013 (-52.33%) and barely covered in other years like 2014 (94.13%). Positive but minimal coverage percentages were prevalent between 2015-2018, showing that the company had increasing profitability during these periods but also was cautious about dividend increases. Solid performance returned notably in 2019 and 2020, but EPS was significantly higher in 2020 and 2021, yielding robust dividend coverage. In the more recent years of 2022 and 2023, lower yet positive coverage ratios reflect relatively stable earnings. On the whole, while there have been periods of weak earnings coverage, Langsess has managed to generally pay dividends without significantly jeopardizing its financial health. However, caution should be exercised considering the coverage inconsistency, particularly in more profitable years followed by those with abrupt EPS declines.

Dividends Well Covered by Cash Flow?

The criterion of dividends being well covered by cash flow evaluates the sustainability of dividend payouts by comparing the free cash flow to the total dividend payout. A higher ratio indicates better coverage, meaning the company comfortably generates enough cash to pay dividends, while a lower or negative ratio suggests potential difficulties in sustaining dividend payments.

Analyzing Lanxess (LXS.DE) in terms of dividend coverage by free cash flow from 2003 to 2023 reveals noteworthy trends. The data highlights significant volatility. For instance, while 2010 showed an exceptionally high coverage ratio of 10.5, indicating ample cash flow to cover dividends multiplicatively, subsequent years displayed fluctuating results. 2011 experienced a negative ratio of -8.29, a clear indicator of financial strain. Similar troubling ratios appeared in 2021 and 2022, both below zero, suggesting cash flow insufficiencies relative to dividend obligations. More favorable periods included 2023, with a ratio of 0.18, showing some coverage though not ideal. Overall, volatile and often low-to-negative coverage rates suggest potential challenges for Lanxess in consistently sustaining its dividend payments, particularly during financial downturns. Stability in cash flow and more consistent higher coverage ratios would be critical for long-term dividend sustainability.

Stable Dividends Since the Company Began Paying Dividends?

Explain the criterion for Lanxess (LXS.DE) and why it is important to consider

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.

Dividends Paid for Over 25 Years?

Dividends Paid for Over 25 Years evaluates if a company has been paying dividends consistently for a long period. This indicates financial stability and a commitment to returning profits to shareholders.

For Lanxess (LXS.DE), the data shows that the company has been paying dividends since 2007, with no dividends paid from 2003 to 2006. Therefore, Lanxess has a 17-year record of paying dividends, which falls short of the 25-year benchmark. This is somewhat concerning for potential investors who look at long-term dividend trends to assess stability and reliability. However, a 17-year dividend payment streak still demonstrates a considerable commitment to returning value to shareholders.

Reliable Stock Repurchases Over the Past 20 Years?

Explain the criterion for Lanxess (LXS.DE) and why it is important to consider

Reliable Stock Repurchases Over the Past 20 Years is the evaluation of Lanxess's consistency and commitment in buying back its own shares. This is a significant measure because reliable repurchase programs can imply that a company is generating sufficient cash flow and believes its shares are undervalued, thereby returning value to shareholders. It can also reduce the number of shares outstanding, generally bolstering earnings per share (EPS).