Last update on 2024-06-27

Rational (RAA.DE) - Dividend Analysis (Final Score: 5/8)

Analyzing Rational (RAA.DE)'s dividend performance with a final score of 5/8 based on an 8-criteria system focusing on dividend yield, growth rate, payout ratio, and stability.

Short Analysis - Dividend Score: 5

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

Rational's (RAA.DE) performance on their dividend policy evaluation using an 8-criteria scoring system appears mixed. While the firm has a consistent history of long-term dividend payments, it falls short in some areas like dividend yield and dividend stability. The dividend yield is significantly lower than the industry average at 0.3574%, which might not satisfy income-focused investors. However, the company has shown an impressive average annual growth rate (30.2%) in dividends. Despite some volatile years, Rational has generally maintained a sustainable payout ratio averaging around 60.26%. It has managed its dividend coverage by earnings well, though coverage by cash flow has shown some instability. On the positive side, Rational has paid dividends for over 22 years and maintained overall financial health. However, its lack of reliable stock repurchases indicates a questionable commitment towards enhancing shareholder value by this method.

Insights for Value Investors Seeking Stable Income

Based on the mixed results from Rational's dividend evaluation, potential investors should proceed with caution. Although the company has shown strong historical growth rates and long-term commitment to dividend payments, their low yield, some inconsistent dividend payouts, and lack of stock repurchases could be less appealing. Limiting factors like fluctuating dividend coverage by cash flow are also worth considering. If you're an investor looking primarily for dividend stability and high yield, Rational may not be ideal. However, if you value strong growth and long-term commitments, it could still be worth your attention. It's recommended to keep an eye on the company's future performance and strategic decisions.

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 dividend income relative to the stock’s price and reveals the percentage return a company pays out to its shareholders in the form of dividends.

Over the past 20 years, Rational's dividend yield has significantly fluctuated, reaching its peak at 5.3318% in 2008 and now standing at 0.3574%, much lower compared to the industry average of 1.36%. This trend indicates a decline in dividends as a portion of the stock price, which could be unfavorable for income-focused investors. However, it can also indicate a higher stock price appreciation over the years, as evidenced by the stock price rising from €45.01 in 2003 to €699.5 in 2023.

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

The Dividend Growth Rate measures how much a company's dividend payouts have increased over a period. A rate above 5% often indicates a company is growing and returning more to shareholders.

Over the last 20 years, Rational (RAA.DE) has experienced a wide variety of dividend growth rates, with an average dividend ratio of approximately 30.2%. This is significantly above the 5% benchmark, indicating generally strong performance with substantial increases in most years. However, the data also shows significant volatility, with negative growth years such as 2006 (-40%), 2009 (-77.8%), 2017 (-73.3%), and 2021 (-57.8%) presenting concerns. On balance, the high average indicates strong overall dividend growth despite some years of setbacks, which is a positive trend for investors looking for dividend consistency.

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

Payout ratio is a financial metric showing the proportion of earnings a company pays to its shareholders in the form of dividends.

The average payout ratio for Rational (RAA.DE) over the last 20 years is approximately 60.26%, which is below the 65% threshold that is considered sustainable. This indicates that Rational has managed to keep its payouts at a relatively conservative level. For instance, with the exception of the years 2005 (134.56%) and 2020 (161.83%), the payout ratio remained below 70% in most years. A lower payout ratio is often associated with a safer dividend because it suggests that the company is retaining enough profit to invest back into the business or to provide a buffer during economic downturns. This trend can be considered positive for dividend sustainability.

Dividends Well Covered by Earnings?

It is important to analyze whether dividends are well-covered by earnings because it indicates financial stability and sustainability.

Rational (RAA.DE) has shown that their dividends are well-covered by earnings in many years, as seen in the Dividend per Share to Earning per Share ratio. The coverage ratio is consistently below 1, except for the years 2005 and 2020. For example, the coverage ratio was as high as 1.618 in 2020, indicating that Rational paid out more dividends than its earnings, a trend which can be risky. However, for years like 2003, 2010, and 2021, the ratios were significantly below 1, at 0.551, 0.499, and 0.441 respectively, reflecting a more cautious and sustainable approach. Overall, the trend suggests a mix of aggressive payouts in certain years and sustainable dividends in others. Rational may need to focus on stabilizing their payout ratios to ensure financial robustness in the long term.

Dividends Well Covered by Cash Flow?

Evaluate if the dividends are being paid out of free cash flow. Dividends covered by free cash flow of greater than 1 indicates the company generates enough free cash flow to cover its dividend payouts, which is a sign of financial health.

For Rational (RAA.DE), the dividend coverage ratio has fluctuated significantly, as observed from a low of 0.1407 in 2009 to a high of 2.001 in 2005. Recent years exhibit a coverage ratio of approximately 0.686 (2023) and 0.921 (2022). These figures suggest that, in several years, the free cash flow was not sufficient to fully cover dividend payouts, reflecting potential instability. Specifically, in 2005 and 2011, the high ratios indicate cover sufficiency, whereas instances below 1 (e.g., 2009 and 2011) question dividend sustainability. The varying trend still leans towards concerns regarding dividend security, especially when the ratio remains below 1 repeatedly.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividends shows a company's consistent financial health, making it reliable for income-seeking investors.

Analyzing the past two decades of dividend payouts, Rational (RAA.DE) faced significant drops, notably in 2009 and 2018. For instance, 2009's payout dropped to 1 EUR from 4.5 EUR in 2008, marking over a 20% drop. Similar volatility happened in 2018. Therefore, while Rational tries to compensate in later years, the inconsistency raises caution for income-focused investments, emphasizing the need to assess underlying causes of such fluctuation.

Dividends Paid for Over 25 Years?

Dividends Paid for Over 25 Years refers to the consistency of a company in distributing dividends to its shareholders annually over a span of 25 years. Regular dividend payments over a long period is a sign of financial stability, profitability, and shareholder commitment.

Analyzing the dividend payments from the year 2001 to 2023, it is evident that Rational (RAA.DE) has a history of paying dividends almost every year for over 22 years. The only exceptions are minor discontinuities such as in 2021 and 2022 where the dividends dropped significantly compared to the previous years. Despite these fluctuations, the trend of continuous dividend payments is indicative of Rational’s commitment to rewarding its shareholders, aligning with the criterion of consistent dividend distributions which is crucial for assessing investment stability and reliability.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases refer to the consistency with which a company buys back its own shares, which can signal confidence in the company's future prospects and can enhance shareholder value.

Rational AG (RAA.DE) has had minimal activity in terms of stock repurchases over the past 20 years. The number of shares has generally remained stable at 11,370,000 with minor fluctuations observed in 2004, 2005, 2006, and 2007. The average repurchased over this period is effectively 0.0%, indicating a near absence of repurchasing activity. This trend may not be very promising from an investor's perspective, as consistent share buybacks can indicate strong financial health and management's confidence in the company's future. In Rational's case, either the management opted to allocate capital towards other avenues like reinvestment in the business or dividend distributions, or they simply did not place significant emphasis on buyback programs.