Last update on 2024-06-27

Pernod Ricard (PER.DE) - Dividend Analysis (Final Score: 4/8)

In-depth analysis of Pernod Ricard's (PER.DE) dividend policy, scoring 4/8 based on an 8-criteria evaluation system, revealing strengths and stability aspects to investors.

Short Analysis - Dividend Score: 4

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

Pernod Ricard's (PER.DE) dividend performance is evaluated against 8 criteria. The score for the review is 4 out of 8, reflecting mixed performance. The company's dividend yield of 2.9393% is higher than the industry average (2.66%), pointing to a good return for shareholders. However, the average annual dividend growth rate is unstable and negative, showing an overall decline. The payout ratio over the last 20 years averages at 29.9%, favorable for financial health, but drastic spikes, like in 2020 (212.5%), indicate occasional inconsistencies. Dividends are generally well-covered by earnings and there has been an improved match with cash flows in recent years. Despite recent consistency, dividend history is marked with interruptions, breaks, and gaps, affecting long-term reliability. The company exhibited stock repurchases around every 3.3 years, reflecting a partial commitment to returning value to shareholders.

Insights for Value Investors Seeking Stable Income

Given the mixed review, investors should be cautious. While Pernod Ricard boasts strong current yields and improvement in certain areas like cash flow coverage of dividends, its unstable growth in dividends and historically inconsistent payouts may present risks. If you are a long-term investor seeking reliability in dividend stocks, Pernod Ricard might not fully meet your needs. However, for those seeking short-term gains or who can withstand potential volatilities, it could be a worthwhile consideration. Evaluate your investment strategy and risk tolerance before diving in.

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 measures the annual dividend payment to shareholders as a percentage of the stock price. It's a critical indicator for investors looking for income through dividends, as a higher dividend yield generally represents a more attractive investment opportunity compared to the industry average.

Pernod Ricard's current dividend yield of 2.9393% surpasses the industry average of 2.66%, which indicates that the company is providing a relatively higher return on investment to its shareholders through dividends. This recent growth in dividend yield—with the highest level in 2023 compared to past years, where it peaked during 2014 and fluctuated with notable drops in some years—is particularly noteworthy. The significant rise in stock prices since 2019 without a corresponding proportional increase in dividend payout may partially explain why the yield was lower in previous years. However, the present improvement in yield is a positive indicator and aligns well with the steady increase in dividend per share, which has grown from €1.64 in 2014 to €4.7 in 2023, marking a commitment to rewarding shareholders.

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

The dividend growth rate measures the annualized percentage increase in dividends per share paid over time. A growth rate above 5% is considered healthy and indicates robust earnings power and confidence.

Analyzing the data for Pernod Ricard (PER.DE) over the last 20 years, we notice some significant anomalies. The presence of zero values in several years and negative values in others clouds the overall trend. Specifically, years 2003-2010 show no dividend payout, 2013 and 2017 have drastic declines in the dividend to -100, which skew the average dividend ratio to -5.009. However, in years such as 2011, 2021, and 2022, there are remarkably high ratios of 7.4627, 17.2932, and 32.0513 respectively, revealing bouts of robust performance. These variations indicate an unstable dividend growth, leaning towards a negative trend overall. Consequently, this implies a high-risk factor and wavering confidence in continual profitability. Monetary growth seems unsustainable; thus a steady growth above 5% cannot be confirmed for Pernod Ricard.

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

Evaluation of the average payout ratio over the last 20 years and its implications for financial health.

The average payout ratio of Pernod Ricard (PER.DE) over the last 20 years is approximately 29.9%, which is well below the benchmark threshold of 65%. A lower payout ratio typically indicates that the company retains a larger portion of its earnings for growth and debt reduction, which bodes well for its financial stability. Notably, in 2020, the payout ratio spiked at an unusually high 212.5%, which seems to be an outlier possibly due to extraordinary circumstances. Overall, this trend shows a disciplined approach to managing dividend payments, and is favorable for long-term investors.

Dividends Well Covered by Earnings?

Assess whether a company's earnings sufficiently cover its dividend payments. This indicates if dividends are sustainable.

Pernod Ricard has shown varying levels of earnings per share (EPS) coverage for its dividends per share over the years. Remarkably, prior to 2010, the company paid no dividends, despite having positive earnings. From 2011 onwards, dividends have generally been well covered, with the ratio often exceeding 0.4. Notably, in 2020, despite lower EPS, the dividend coverage ratio was quite robust at 2.13, likely due to adjustments in payout policies. This trend suggests a broadly responsible approach to dividend sustainability, aligning payouts with annual earnings, which is a very good sign for investors focused on stable dividend income. Recent years show a healthy balance with coverage ratios above 0.5, consolidating trust in the firm's commitment to retaining reasonable payout levels relative to earnings.

Dividends Well Covered by Cash Flow?

Dividend coverage by free cash flow is critical as it shows whether the company is generating enough cash to support its dividend payouts. A ratio above 1 indicates solid coverage, below 1 signifies the company may be paying out more than it earns in free cash flow.

Analyzing the dividend coverage ratio for Pernod Ricard (PER.DE) from 2003 to 2023, the trend fluctuates significantly. For example, years like 2007 and 2008 show negative and excessively high payout ratios, indicating a period of poor cash flow management. Years with strong coverage include 2020, where the ratio exceeds 1 (1.04), reflecting optimal cash flow management. In recent years, the ratio stabilized around 0.8, signifying improved but still cautious coverage. The overall trend demonstrates that while Pernod Ricard has faced challenges, recent improvements hint at a better balance between free cash flow and dividend payouts.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments over the past 20 years is crucial for income-seeking investors because it indicates a company’s commitment to returning value to shareholders even during economic downturns. A company that maintains or steadily increases its dividends is generally seen as financially stable and well-managed, which can make it a more attractive investment.

Reviewing the dividend per share for Pernod Ricard from 2003 to 2023, we can see some irregularities, particularly in certain years like 2003-2010, 2013, and 2015-2019, where dividends were not paid. However, from 2010 onwards, there is mostly a progressive increase in dividends—from €1.34 in 2010 to €4.7 in 2023, showing a strong upward trend in later years. The drops in 2013 and the lack of dividends until 2019 could have been unsettling for investors, yet the overall upward trajectory in the long term is promising. Based on this data, the criterion of a 20% drop is not met continuously.

Dividends Paid for Over 25 Years?

Assessing if a company has paid dividends for over 25 years is critical as it signifies stability, reliability, and shareholder commitment. It helps investors gauge long-term profitability and the effectiveness of the company's management in generating consistent cash flows.

When analyzing Pernod Ricard's dividend payment history for over 25 years, we observe gaps in the years 2001 through 2009, 2013, and 2017 through 2019. The dividends per share began in 2010 at €1.34 and showed growth, interrupted by some gaps, to €4.70 in 2023. The data confirms that Pernod Ricard has not paid dividends consistently over 25 years, lacking payments for nearly half of the evaluated years. This trend indicates that while Pernod Ricard has shown an ability to increase dividends significantly in recent years, its commitment to consistent dividend payments over a long-term horizon is not fully established. For long-term dividend-focused investors, this inconsistency presents a notable risk.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases over the past 20 years point to a management's commitment to returning value to shareholders. It is an important criterion as it signals financial health and prioritization of shareholder wealth.

Over the past 20 years, Pernod Ricard has demonstrated a pattern of share buybacks in the years 2004, 2014, 2016, 2017, 2019, 2020, 2021, 2022, and 2023. This makes up for an average repurchased occurrence of around 6 times in 20 years, translating to approximately once every 3.3 years. A reduction trend in the total number of shares can be seen, especially starting from 2019, indicating a period of more consistent buybacks. For instance, from 2019 to 2023, the number of shares has decreased from 264,173,497 to 256,048,280, showing a committed effort to reduce shares outstanding. This trend is generally favorable as it indicates that the company is making efforts to return excess cash to shareholders, tighten its ownership and potentially increase EPS through reducing the number of shares outstanding. Considering these aspects, the trend can be seen as positive for long-term shareholders.