Last update on 2024-06-27

Sodexo (SJ7.F) - Dividend Analysis (Final Score: 5/8)

Explore Sodexo (SJ7.F)'s dividend stability and performance with a detailed analysis of an 8-criteria scoring system. Final Score: 5/8.

Short Analysis - Dividend Score: 5

We're running Sodexo (SJ7.F) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

Sodexo (SJ7.F) scored a 5 on the 8-criteria dividend stability analysis. Their dividend yield has generally been higher than the industry average, peaking at 4.3188% in 2023. However, their dividend growth rate hasn't been consistently over 5%, which indicates instability as dividend growth fluctuates widely. With an average payout ratio below 65% (at 41.44%), they've generally maintained dividend sustainability. Their dividends have mostly been covered by earnings, except in turbulent years like 2020. Examining cash flows for coverage wasn't fully detailed, but stable dividend payouts for over 20 years were noted, albeit not meeting a strict 25-year consistency. Share repurchases have been reliable over 20 years, demonstrating their shareholder value approach.

Insights for Value Investors Seeking Stable Income

Sodexo can be an attractive stock for income-focused investors due to its high dividend yield and responsible payout ratio. However, the inconsistent dividend growth may be a concern for those seeking stable, predictable income. Given the overall stability in dividend payments and their shareholder-friendly stock repurchase actions, it might be worth keeping an eye on Sodexo, especially if further detailed analysis (such as cash flow evaluation) confirms long-term sustainability. Nonetheless, prospective investors should remain cautious about the dividend growth volatility.

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 payments to shareholders relative to the stock price. It's essential as it indicates the income return on investment.

For the past 20 years, Sodexo's dividend yield has shown volatility but an overall positive trend, peaking at 4.3188% in 2023 which is significantly above the industry average of 1.67%. This higher yield is generally attractive to income-focused investors. However, it’s important to consider the company's stock price fluctuations and underlying financial health to ensure sustainability.

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

The Dividend Growth Rate criterion of higher than 5% in the last 20 years evaluates how consistently and significantly the company has been able to increase its dividend payments over time.

Sodexo (SJ7.F) shows a highly variable dividend growth rate over the last 20 years. The dividend per share growth fluctuated significantly with values ranging from -100% to 29.1667%. The average dividend ratio stands at approximately 0.77%. This oscillation implies instability in dividend growth, thus failing to consistently meet a growth rate of over 5%. This inconsistent trend is considered bad for investors who seek stable and predictable dividend income.

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

The Average Payout Ratio measures the proportion of earnings a company pays to its shareholders in the form of dividends. A lower ratio, typically below 65%, is preferable as it indicates financial stability and the ability to reinvest in growth.

The average payout ratio for Sodexo over the last 20 years is 41.44%, which is well below the threshold of 65%. This is a positive trend indicating that Sodexo has managed its earnings responsibly. However, it's important to note the anomalies in 2020 and 2021 due to extraordinary items or economic challenges which caused negative and extremely high payout ratios respectively. Despite these anomalies, the overall trend is good for Sodexo's dividend sustainability.

Dividends Well Covered by Earnings?

Dividends are well covered by earnings.

The earnings per share (EPS) of Sodexo (SJ7.F) have generally trended positively over the past two decades, indicating that the company has a solid capacity to generate profits. Notably, in years where the EPS was robust, such as in 2007 (€2.1935), 2013 (€2.8812), 2015 (€4.5413), and 2023 (€5.4336), the dividends per share were also respectable (€1.15 in 2008, €1.59 in 2013, €1.8 in 2014, €3.1 in 2023), suggesting a healthy payout policy. However, certain anomalies are worth noting. For instance, in 2020, the EPS was negative (-€2.1608), implying a loss, while the dividend per share was still €2. This could indicate that the company dipped into reserves or took on debt to maintain its dividend, which might not be sustainable in the long term. Overall, for the majority of years, the dividends are well-covered by the earnings, especially in recent years like 2023, where the EPS of €5.4336 strongly eclipses the dividend per share of €3.1, providing a robust cover ratio of about 1.75 times. This portrays a healthy trend for investors, suggesting that the dividends are sustainable and well-supported by the company’s earnings.

Dividends Well Covered by Cash Flow?

Explain the criterion for Sodexo (SJ7.F) and why it is important to consider

Dividends Covered by Cash Flow is a crucial criterion as it assesses whether the company generates enough cash to cover its dividend payments. A payout ratio over 100% means the company is paying out more in dividends than it generated in free cash flow; this is often seen as unsustainable in the long term.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividends, with drops not exceeding 20% over two decades, reflects strong financial health and attractiveness to income-focused investors.

Analyzing Sodexo's dividend per share data from 2003 to 2023 shows that the dividends have generally increased over the years. Starting from no dividend in 2003, the company began consistent payouts from 2004 onwards, with notable increments. There were only a few years where dividends dropped (not by more than 20%), such as in 2020, where the dividend per share decreased to 2 from 2.9 in 2019, likely due to the COVID-19 pandemic's impact. Despite this, the stable upward trend resuming post-crisis period, growing to 3.1 by 2023, demonstrates resilience and commitment to shareholder returns.

Dividends Paid for Over 25 Years?

This criterion assesses whether a company has consistently paid dividends for over 25 years. Consistent dividend payments are important as they indicate the company's financial health and its ability to generate steady cash flows.

Sodexo (SJ7.F) has a mixed history of dividend payments. Let's consider the data provided: from 2001 to 2003, no dividends were paid. From 2004 onwards, except for a few years, dividend payments were more or less consistent, with tremendous growth observed. By 2023, the dividend per share increased to €3.1, showing a stable trend in recent years. Despite some gaps in the early years, the trend is generally favorable, portraying the company's stronger financial footing and it responsibly retaining earnings during challenging times. However, it fails to meet the strict 25-year consistency criterion.

Reliable Stock Repurchases Over the Past 20 Years?

Stock repurchases reduce the number of shares outstanding, which can enhance shareholder value by increasing the earnings per share. Consistent repurchases indicate strong cash flows.

Sodexo's stock repurchase analysis over the last 20 years reveals a favorable scenario. With a noticeable reduction in the number of shares outstanding, from 162,127,698 in 2003 to 146,127,620 in 2023, it represents a significant reduction of approximately 10%. Furthermore, the average repurchase rate of -0.5143 is positive, reflecting shareholder-friendly actions by the company. The reliable repurchase trend observed in notable years like 2004, 2005, 2006, 2008, 2009, 2011, 2012, 2016, 2017, 2018, 2019, and 2023 reaffirms the company’s commitment to this strategy. Given this consistency, the trend can be regarded as beneficial for investors seeking value return through reduction in share dilution and potential positive impacts on earnings per share.