Last update on 2024-06-27

Volkswagen (VOW3.DE) - Dividend Analysis (Final Score: 6/8)

In-depth analysis of Volkswagen (VOW3.DE) dividend performance and stability using an 8-criteria scoring system. Final Score: 6/8.

Short Analysis - Dividend Score: 6

We're running Volkswagen (VOW3.DE) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

Volkswagen's dividend policy has a mix of strengths and weaknesses based on an 8-criteria scoring system. They have an exceptionally high current dividend yield (15.67%) compared to the industry average (2.91%), which appears attractive but potentially risky due to dividend sustainability concerns. Dividend growth rates have seen both extreme highs and significant negatives, indicating inconsistency. The average payout ratio (21.997%) is well below the sustainable benchmark of 65%, suggesting long-term financial stability, though there have been fluctuations. Earnings have sometimes struggled to cover dividends, with several years showing a payout ratio above the critical 0.5 mark, hinting at financial stress. Similar trends are seen when dividends are measured against free cash flow; while some years show good coverage, others, like 2022, indicate unsustainable payouts. Volkswagen has paid dividends for over 25 years, highlighting commitment despite variability in amounts. However, the company's lack of a consistent stock repurchase program and dilution of shares over time detract from its attractiveness.

Insights for Value Investors Seeking Stable Income

Overall, investing in Volkswagen for its dividends might be a mixed bag. While the extremely high dividend yield is attractive, it's paired with potential risks regarding consistency and sustainability. The company has a solid track record of paying dividends for over 25 years but shows inconsistencies in dividend growth and coverage by earnings and cash flow. If you are risk-averse and value stability, you might want to look into companies with more consistent and predictable dividend policies. However, if you're open to higher returns with associated potential risks, Volkswagen could be worth considering. Conduct thorough research and perhaps consult with a financial advisor to align this opportunity with your investment goals.

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?

Criterion 1: Dividend Yield

Volkswagen's current dividend yield of 15.6708% is exceptionally higher than the industry average of 2.91%. Historically, Volkswagen's dividend yields have seen significant fluctuations. For instance, in 2007, the yield was 1.31%, rising to 4.9216% by 2008, then plummeting to 1.36% in 2010, before rising again. The sharp increases in recent years, especially 22.8655% in 2022 and 15.6708% in 2023, are anomalies when compared to its historical averages and the industry. Such high yields typically suggest a higher payout ratio, which can be both positive and negative. It could indicate attractive returns for investors but may also reflect the company's current challenges or uncertainties. Comparing VW's yield to its share price trends, the drops in stock price (116.42 in 2022 and 111.8 in 2023) partially explain the spike in yield, since yield increases as stock prices fall. Pay close attention to sustainability; while a high yield is inviting, persistent high payouts can strain company finances, compromising future dividends.

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

The Dividend Growth Rate measures how much a company's dividend payments have increased over a specific period. A CAGR of 5% over 20 years is considered robust growth, indicating the company's financial health and robust cash flows.

Based on the provided data, Volkswagen's Dividend Per Share Ratio had a notably high growth rate of 447.74% in 2022, but it also experienced significantly negative values in other years, such as -10.64% in 2006 and -38.68% in 2016. Although the average dividend ratio is around 29.16%, suggesting healthy potential growth, the fluctuations indicate inconsistent dividend performance. Hence, while the long-term growth trend may superficially appear promising, the inconsistency is troubling and may not indicate stable growth.

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

The payout ratio measures the percentage of earnings paid to shareholders in dividends. An average payout ratio lower than 65% is generally viewed as sustainable.

Volkswagen's average payout ratio over the past 20 years is 21.997%. This low average indicates that the company has retained a significant portion of its earnings for reinvestment and growth. With most years showing payout ratios far below 65%, this trend is sustainable and positions Volkswagen competitively for long-term growth and financial stability. However, the high fluctuations year-on-year, especially the negative payout ratio in 2015, needs analysis to understand underlying causes.

Dividends Well Covered by Earnings?

Dividends are said to be well covered by earnings if the dividend payout ratio (dividend per share divided by earnings per share) is less than or equal to 0.5. This implies financial stability and sustainability in dividend distributions.

Reviewing the data from 2003 to 2023, we see that Dividends per Share covered by Earnings per Share varies significantly over the years. From 2003 to 2023, there are several years where the ratio is significantly higher than the desired 0.5 threshold (e.g., 2004, 2009, and 2023). The payout ratio multiple times exceeds the threshold, indicating a potential stress on Volkswagen's earnings to support its dividend payouts. For instance, in 2022 and 2023, the ratios are at 0.863 and 0.529 respectively, which is above or just at the critical 0.5 ratio. Particularly, in years like 2015 and years with negative earnings, it indicates potential unsustainable payouts. However, in other years, such as 2006, 2007, 2008, etc., the ratios are well below 0.5, suggesting more robust dividend coverage from earnings. The trends reflect periods of strong earnings and stress, hence stability is mixed for the sustainability of dividends.

Dividends Well Covered by Cash Flow?

This criterion evaluates the extent to which a company's dividends are supported by its free cash flow, a crucial measure of sustainable payout levels and financial health.

Volkswagen (VOW3.DE) has displayed significant variability in the extent to which its dividends are covered by free cash flow over the past two decades. Notably, in years such as 2019, 2021, and 2022, the coverage ratios have been 0.412, 0.150, and 0.748 respectively, indicating that the dividend payouts were well supported by the generated free cash flow for those periods. However, several years experienced negative coverage ratios, such as 2022's -1.822 and 2015's -0.552, signifying the company's dividend payouts exceeded its free cash flow. This inconsistency suggests periods where Volkswagen may have relied on external financing or cash reserves to maintain dividend payments, highlighting potential sustainability concerns. Thus, while there are years with strong coverage, the overall trend necessitates cautious scrutiny in forecasting future dividend stability.

Stable Dividends Since the Company Began Paying Dividends?

Explain the criterion for Volkswagen (VOW3.DE) and why it is important to consider

Stable dividends over the past 20 years are a critical marker of fiscal reliability and a highly attractive feature for income-focused investors. By ensuring that the dividend per share does not drop by more than 20%, investors gain assurance on the company's financial stability and forecasting capability.

Dividends Paid for Over 25 Years?

Whether a company has paid dividends consistently over the last 25 years, and its importance in evaluating the stability and reliability of dividends.

Volkswagen (VOW3.DE) has paid dividends consistently over the past 25 years, starting from a dividend per share of 0.83 EUR in 2000 to an impressive 17.52 EUR in 2023. This consistency, despite fluctuations in the dividend amounts, demonstrates a strong commitment to returning profits to shareholders. A notable spike can be observed in 2022, with a dividend per share of 26.62 EUR, which indicates a particularly profitable year or perhaps special dividends. The trend reflects financial resilience and a shareholder-friendly approach, which is a positive indicator for dividend stability and reliability.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases involve a company buying back its own shares consistently over a substantial period, ideally resulting in reduced outstanding shares. This can indicate strong financial health and a commitment to returning value to shareholders.

Over the past 20 years, Volkswagen has not demonstrated reliable stock repurchase behavior. The number of shares has generally increased from 383,808,867 in 2003 to 501,295,263 in 2023, with notable jumps between 2010 and 2012. This suggests the company has either issued additional shares, potentially for capital raising or acquisitions, rather than repurchasing shares. An increasing number of outstanding shares often dilutes existing shareholders' equity, which is not an encouraging trend for those looking for shareholder value return. Additionally, there have been no reliable stock repurchase years in this period, confirming the lack of a dependable buyback strategy. Thus, this trend is bad for Volkswagen's attractiveness from a dividend repurchase viewpoint.