Last update on 2024-06-27

Schaeffler (SHA.DE) - Dividend Analysis (Final Score: 5/8)

Analyze Schaeffler's (SHA.DE) dividend policy performance using an 8-criteria scoring system to evaluate stability and growth potential. Final Score: 5/8.

Short Analysis - Dividend Score: 5

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

The analysis of Schaeffler (SHA.DE) using an 8-criteria scoring system for evaluating dividend performance and stability results in a score of 5. Notably, Schaeffler’s dividend yield is significantly higher than the industry average, indicating a generous policy, but the declining stock price over recent years suggests underlying risks. The company shows extreme volatility in dividend growth rates, raising concerns about long-term stability. Its average payout ratio is low, indicating financial prudence. Both earnings and cash flow generally cover dividends well, albeit with fluctuations. However, dividends have not been stable over the last 20 years, with payments only starting in 2016. The company lacks a long history of dividend payments and does not have a consistent stock repurchase policy, with only minimal buybacks since 2015.

Insights for Value Investors Seeking Stable Income

Given the high dividend yield, Schaeffler (SHA.DE) might appeal to income-focused investors looking for a strong payout. However, due to the volatility in dividend growth, recent declines in stock price, and lack of a long-term dividend history, it may not be suitable for conservative investors seeking stability and long-term growth. Prospective investors should weigh the high yield against the potential risks and lack of consistent past performance before investing.

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

Schaeffler's dividend yield of 8.0501% is significantly higher than the industry average of 2.23%. Over the past decade, the company's dividend yield has exhibited substantial growth, especially post-2016. For instance, in 2016, the yield was only 1.0672%, and it steadily increased to its current level. The peak was in 2020, with a yield of 13.1675%, which can be attributed to a relatively low stock price ($6.835) at the close of that year. Comparing this to the industry average, Schaeffler consistently outperformed, reflecting a generous dividend policy. However, investors should consider the stock price went from $16.25 in 2015 to $5.59 in 2023, indicating some underlying risks. In summary, while the high dividend yield is promising for income-focused investors, the declining stock price might pose concerns for long-term capital appreciation.

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

Why analyzing the Dividend Growth Rate over a timeframe of 20 years and keeping it over 5% is important.

The given dividend per share ratios signify extreme volatility. The values range from significant surges like 233.33% in 2017 to severe drops like -72.22% in 2021, with an average dividend ratio of 24.98%. Maintaining a dividend growth rate of 5% consistently over 20 years is crucial because it indicates long-term sustainable growth and shareholder value. In Schaeffler's case, the average is positive, but the inconsistency, such as the absence of dividends in some years and negative growth in others, suggests a precarious situation for long-term stability.

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

Criteria like the average payout ratio are essential when assessing a company's dividend stability and growth potential. A lower payout ratio indicates that the company retains more earnings for reinvestment, which can drive future growth and sustainability.

The average payout ratio for Schaeffler over the past 13 years (since 2011) is approximately 16.25%. This is well below the 65% threshold, which is a positive indicator. It shows that Schaeffler has been cautious in distributing dividends relative to its earnings, hence retaining a considerable portion of its profits for reinvestment or cushioning against future uncertainties. Despite a few volatile years, such as 2019 with an exceptionally high payout ratio of 85.59%, and 2020 where the ratio went negative (-140.056%), the overall trend exhibits financial prudence regarding dividends. However, the negative and high payout ratios in some years suggest the company faced difficulties during those periods, but the overwhelming lower average indicates resilience and strategic planning in the longer term.

Dividends Well Covered by Earnings?

Explain the criterion for Schaeffler (SHA.DE) and why it is important to consider

Dividends are well covered by the earnings means that a company should have sufficient earnings to comfortably cover its dividend payouts. This is typically measured as a ratio of earning per share (EPS) to dividend per share (DPS), also known as dividend coverage ratio. A dividend coverage ratio above 1 indicates that the company has enough earnings to support the dividend payments, providing a safety margin and ensuring long-term sustainability of the dividend.

Dividends Well Covered by Cash Flow?

Dividends being well covered by cash flow means that the company's free cash flow is sufficient to cover its dividend payments to shareholders. It is important to consider because it indicates the company's ability to sustain its dividend payments without jeopardizing its financial stability.

Analyzing the provided data for Schaeffler (SHA.DE), the ratio of dividend payout to free cash flow fluctuates significantly over the years. Starting from a very low coverage ratio in 2011-2014, we see a marked improvement starting in 2015 with a remarkable 72.33% coverage. Despite a dip in the following years, the ratio stabilized between 45.07% to 97.06%, indicating a generally good coverage of dividends by free cash flow. The year 2018 stands out with a 97.06% coverage which slightly decreases to around 68.29% in 2019. However, the downward trend continued as we see a drop to 47.98% in 2020. By 2021, the coverage drops further to 27.27%, but it jumps back to an impressive 96.55% coverage in 2022, and 74.63% in 2023. In essence, this variable pattern still generally represents good coverage, especially in recent years. The company's ability to cover their dividends with free cash flow currently looks resilient, enhancing investor confidence in the sustainability of the dividend payout despite some fluctuations.

Stable Dividends Since the Company Began Paying Dividends?

A stable dividend policy over the past two decades is crucial because it demonstrates consistent company performance and long-term commitment to returning value to shareholders. Income-seeking investors often rely on dividends as a steady income source.

Over the last 12 years, Schaeffler's dividends have fluctuated notably. Although the data provided is for only 12 out of the past 20 years, it's clear that dividend payments were inconsistent at the beginning, with no dividends from 2011 to 2015. After 2015, dividends were introduced and increased from €0.15 in 2016 to €0.9 in 2019. The significant drop in dividends during 2021 (€0.25) shows instability. However, if we interpret 'dropped by 20%' strictly in year-over-year changes, 2020 to 2021 represents a more than 70% reduction. Therefore, the trend reveals additional risks for income-focused investors, and such a decline is not favorable.

Dividends Paid for Over 25 Years?

Examine if the company has consistently paid dividends for over 25 years.

The dividend history of Schaeffler (SHA.DE) from 2011 to 2023 shows that the company began paying dividends in 2016, with amounts ranging from 0.15 to 0.9 per share. This payment history covers only 7 years, falling short of the 25-year criterion. This trend indicates that while Schaeffler has established a relatively recent tradition of dividend payments, it lacks the long-term track record often sought by conservative dividend investors.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases indicate that a company has consistent excess cash flows to return to shareholders, thus boosting shareholder value over time.

Over the past 20 years, Schaeffler has a notable lack of reliable stock repurchases. The number of shares outstanding only changed in 2015, decreasing from 666 million to 615.9 million. This suggests that the company does not prioritize returning excess cash to shareholders through buybacks. The average repurchase rate of 0.051 (5.1%) is low. While this may not necessarily be negative if the company uses its cash effectively elsewhere, it does raise questions about its commitment to shareholder returns via stock buybacks. This trend might be considered unattractive for investors who prefer regular buybacks.