Last update on 2024-06-27

Solvay (SOL.F) - Dividend Analysis (Final Score: 5/8)

Explore the in-depth dividend analysis of Solvay (SOL.F) with a final score of 5/8, including performance, stability, and historical payout data.

Short Analysis - Dividend Score: 5

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

The dividend analysis of Solvay (SOL.F) evaluates its credibility based on 8 criteria, with a total score of 5 out of 8. Solvay’s dividend yield is significantly higher than the industry average, indicating a potentially high return but may also signal underlying stock price issues. Its average annual dividend growth rate over 20 years is 4.48%, slightly below the desired 5%, and shows considerable fluctuations. The average payout ratio is 56.1%, but with varying inconsistencies. Dividends have been covered by earnings and cash flow but exhibited irregular coverage, hinting at financial strain during specific periods. Solvay has been paying dividends since 2011 but doesn’t meet the 25-year mark. It also has a mixed record in stock repurchases, with sporadic buybacks over the past 20 years.

Insights for Value Investors Seeking Stable Income

Although Solvay offers a high dividend yield and demonstrates a commitment to payouts post-2011, the inconsistencies in its growth rate, payout ratios, and buyback programs signal potential financial instability. The one-year dip and absence of a 25-year payment history might deter long-term dividend hunters. It is recommended to approach with caution, possibly considering other investments if you seek steady growth and dividend reliability.

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?

Discussing dividend yield is crucial because it provides insight into the income-generating potential of an investment relative to its market price. A high dividend yield can indicate substantial returns, but may also signify issues like a falling stock price.

Solvay's dividend yield of 23.5802% is dramatically higher than the industry average of 4.85%, suggesting a potentially high return on investment. Comparing with the historical data, Solvay's dividend yield has increased significantly from 6.5428% in 2022 to 23.5802% in 2023. This massive uptick may either be seen as highly attractive for income-focused investors or potentially alarming due to the unusual jump in yield, often caused by a plummet in stock price, which in Solvay's case dropped from EUR 94.76 in 2022 to EUR 27.82 in 2023. Thus, while the yield is appealing on paper, it raises concerns about underlying financial health and stock performance.

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

The dividend growth rate represents the annualized percentage rate of growth that a particular stock's dividend undergoes over a period of time. A consistent growth rate above 5% indicates strong financial health and a shareholder-friendly management.

Looking at Solvay’s (SOL.F) dividend ratio values over the past 20 years, we notice considerable fluctuations. For instance, there was an extreme drop in 2012 and an extraordinarily high rate in 2022. The average dividend ratio over this period is 4.48%, which is slightly below the desirable 5% growth rate. Given the severe fluctuations and an average under the 5% mark, this trend seems unstable and could be perceived as a red flag to potential long-term investors interested in steady dividend growth.

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

Criterion 1.2 analyzes whether the average payout ratio for a company has been consistently below 65% over a specified period, in this case, 20 years. A lower payout ratio suggests that the company is retaining adequate earnings for reinvestment, growth, or to cushion against future downturns, which is a positive indicator for financial stability.

The average payout ratio for Solvay (SOL.F) over the last 20 years stands at 56.1%, which is comfortably below the 65% threshold. This is generally a positive trend. However, the data reveals inconsistencies in payout ratios across different years, including significant spikes to 356.7% in 2014 and 327.9% in 2019. There were also years with negative or zero payout ratios. Such fluctuations could signal potential instability or varying financial strategies over time. Investors should keep an eye on these variances, as they might indicate periods of irregular earnings or unique financial challenges that the company faced.

Dividends Well Covered by Earnings?

Dividends being well-covered by earnings is crucial as it ensures the sustainability of dividend payments.

Over the years, Solvay's earning per share (EPS) and dividend per share (DPS) ratio has varied significantly. In early years, no dividends were distributed despite stable earnings. From 2011 onwards, the dividend per share has been substantially consistent, but the EPS coverage has exhibited considerable fluctuations, indicating variable financial health and dividend sustainability. Importantly, coverage ratios well below 1, especially in years like 2020 (-0.402) or low values in 2018 (0.435), reflect potential pressures or management's commitment to paying dividends irrespective of earnings. The trend towards stabilization in 2022 and 2023 suggests a focus on sustainable dividends while keeping EPS in focus.

Dividends Well Covered by Cash Flow?

Dividends well covered by free cash flow means the company's dividend payments are adequately supported by the cash it generates from operations, indicating financial stability.

Solvay (SOL.F) has a varying level of free cash flow coverage for its dividend payments. From a low of 0.27 in 2003 to a high of 1.39 in 2011, the ratio has fluctuated between years. Ideal coverage is typically 2.0 or higher; hence most values are below this threshold. However, the free cash flow always covered the dividends every year without any cash flow shortages, indicating financial discipline. The consistent ability to cover dividends is positive, but the occasional lower ratios suggest potential liquidity risks.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments is crucial for income-seeking investors as it guarantees a predictable and consistent source of income over time, helping mitigate investment risks.

Solvay (SOL.F) exhibits a notable pattern in its dividend payments over the past two decades. Starting in 2011, the company began issuing dividends regularly. From 2011 to 2019, Solvay's dividend payments demonstrated a stable and slightly increasing trend, escalating from €3.0667 to €3.75 per share. However, in 2020, the dividend per share abruptly dropped to €3. This represented a decrease of approximately 20%, which aligns with broader economic disruptions due to the Covid-19 pandemic. Nevertheless, Solvay recovered quickly, increasing dividends substantially to €6.2 and furthering to €6.56 by 2023. This resilience indicates a strong commitment to shareholders despite occasional economic challenges, presenting a generally positive trend for income-seeking investors, though the one-year dip notably broke the stability pattern investors typically seek.

Dividends Paid for Over 25 Years?

The criterion evaluates whether Solvay has a consistent track record of paying dividends for over 25 years, which can indicate financial stability and commitment to shareholder value.

Solvay has been paying dividends consistently only since 2011, which can be verified by the record for dividends per share from 2011 to 2023 provided in the data. This shows a strong commitment to returning capital to shareholders over the last 13 years, although it falls short of the 25-year criterion mentioned. The trend in dividend payments is generally positive, with a noticeable increase from €3.0667 per share in 2011 to €6.56 per share in 2023. This represents more than a 50% increase in dividend payouts over the observed period, which could be construed as a good indicator of the company's robust cash flow and profit generation. However, investors looking specifically for 25 years of dividend payment could notice this as a limitation.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases over extended periods indicate a company's strong commitment to return value to shareholders. It also reflects prudent management and solid cash flow generation.

Over the past 20 years, Solvay (SOL.F) has demonstrated a mixed approach to stock repurchases. While there have been years with share buybacks (2004, 2006, 2007, 2009, 2010, 2015, 2018, 2019, 2020), there are also years where the number of shares increased, notably 2013 and 2014. The average number of shares repurchased over this period is approximately 2.75% annually. This trend indicates that Solvay hasn't consistently repurchased shares but has done so sporadically. While this may highlight strategic repurchases based on market conditions, it can also imply less emphasis on consistently returning value to shareholders through buybacks. Overall, while the trend is positive for the years repurchased, the lack of consistent repurchases can be seen as less reliable for investors seeking steady buyback programs.