Last update on 2024-04-25

Deutsche Telekom (0MPH.IL) - Dividend Analysis (Final Score: 4/8)

Explore the performance and stability of Deutsche Telekom's dividend policy using an 8-criteria scoring system. Analyze dividend yield, growth rate stability, payout ratios, and more.

Short Analysis

We're running Deutsche Telekom (0MPH.IL) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

The detailed dividend analysis of Deutsche Telekom (0MPH.IL) over numerous criteria reveals a mixed picture regarding its financial health and dividend policy. The company's dividend yield has trended downwards to 3.2303% in 2023 from peaks in previous years, notably below the industry average of 5.3%. Despite the volatile dividend yield, its dividend growth rate averaged slightly over 5% across 20 years, showing some potential for increasing payouts, though with substantial fluctuations. The average payout ratio unusually high at 284.76% indicates a potentially unsustainable dividend policy due to payouts exceeding earnings in many years. Furthermore, the analysis of dividend coverage through earnings and cash flow showed inconsistency, with periods where dividends were well-covered and others suggesting risk to dividend sustainability. Deutsche Telekom has paid dividends in 22 out of the last 25 years, reflecting a generally solid track record despite fluctuations in the amounts paid, though not continuously for over 25 years, indicating slightly short of steadfast reliability. The stock repurchase activity was minimal and did not significantly impact share dilution over the past 20 years.

Insights for Investors Seeking Stable Dividend Income

Based on this analysis, Deutsche Telekom portrays a mixed profile for dividend investors. The company shows some strengths in dividend growth and a generally consistent history of dividend payments, which might be attractive for long-term focused investors willing to cope with fluctuation and potential risks associated with the payout sustainability. However, the high payout ratio, volatile dividend coverage, and minimal stock repurchases alongside the dividend yield falling below the industry average raise questions about the attractiveness of Deutsche Telekom as a stable dividend investment. Caution is advised for investors prioritizing income stability and sustainable payout policies. Investors should weigh the potential for long-term dividend growth against the volatility and sustainability concerns highlighted.

Overview

Deutsche Telekom (0MPH.IL) has established itself as a leading global telecommunications company, with a strategic focus on expanding its footprint in both established and emerging markets. The company's strategic priorities revolve around driving innovation, investing in network infrastructure, and enhancing customer experience. Deutsche Telekom has been proactive in developing advanced technologies such as 5G and fiber optics to maintain its competitive edge in the rapidly evolving telecommunications industry. Additionally, the company has pursued strategic partnerships and acquisitions to strengthen its market position and diversify its revenue streams. By prioritizing technological advancement and customer-centric strategies, Deutsche Telekom is well-positioned to capitalize on growth opportunities and navigate challenges in the dynamic telecommunications landscape.

Detailed Analysis

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Yield and Growth Rate Stability:

Dividend Yield Higher Than the Industry Average?

A dividend yield provides investors an idea of the cash flow they are generating with their investment in a company's stock, relative to the current market price of the stock. It's a crucial metric for investors seeking income from dividends in addition to capital gains. For Deutsche Telekom (0MPH.IL), we will explore how its current dividend yield of 3.2303% compares to the industry average.

Analyzing the provided dividend yield values over the last 10 years, it is evident that Deutsche Telekom's dividend yield has shown significant volatility. It has had extreme highs, notably reaching up to 19.2173% in 2012, and more modest levels in recent years, settling at 3.2303% in 2023, which is below the industry average of 5.3%. This trending decrease in dividend yields can indicate several things: It could imply that the company's stock price has been increasing at a faster rate than dividends per share, as also indicated by the closing stock price moving from 12.45 in 2013 to 21.67 in 2023. However, comparing it against the industry average yield suggests that, as of now, Deutsche Telekom may offer a less attractive income component from dividends compared to its peers, potentially reflecting a focus on using earnings for reinvestment or growth initiatives rather than distribution to shareholders. This trend might be favorable for long-term growth prospects but less appealing for income-focused investors. The dividend per share has also been notably volatile, with peaks in 2017 and lows in other years, demonstrating Deutsche Telekom's variable approach to dividend payouts. Overall, this context alongside the falling yield trend can indicate mixed signals for shareholders, contingent on their investment goals - whether they prioritize dividend income or are inclined towards long-term capital appreciation.

The Dividend annual Growth Rate is higher than 5% in the last 20 years?

Analyzing the Dividend Growth Rate over the last 20 years provides insights into a company's ability to increase its dividend payouts to shareholders, which is an indicator of financial health and profitability. We will look into this criterion for Deutsche Telekom (0MPH.IL) to understand its performance in terms of rewarding its investors through dividends.

Upon reviewing the dividend ratios for Deutsche Telekom over the last 20 years, we observe fluctuating annual changes, with ratios ranging significantly from negative values up to a peak of 116%. This variability indicates volatility in Deutsche Telekom's ability to maintain steady growth in dividends. Despite such fluctuations, the average dividend growth rate came to 5.651%, narrowly crossing the threshold for this criterion. Considering the substantial fluctuations and periods of decline (-100%, -19.1129%, -15.193%, -64.2857%, -50%), interspersed with significant gains (116%, 66.6667%, 71.4286%), the trend indicates that while Deutsche Telekom has moments of strong dividend performance, the erratic nature of growth rates may give rise to concerns regarding stability and predictability of future dividends. Such volatility might be indicative of external market factors, business cycles, or strategic financial decisions affecting dividend payouts. However, the attainment of an average growth rate above 5% reflects Deutsche Telekom's overall ability to increase its dividend payouts, suggesting a general positive trend amidst the inconsistencies. This is favorable for long-term investors focused on dividend growth, albeit with a higher risk tolerance for annual fluctuations.

Payout Ratios Sustainability:

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

The average payout ratio is a financial metric that measures the proportion of earnings a company pays to its shareholders in the form of dividends, expressed as a percentage of the company's net income. It's a crucial indicator for dividend health and sustainability, as it shows how much of its profit is returned to shareholders versus reinvested in the company. We're examining the average payout ratio for Deutsche Telekom (0MPH.IL) over the past 20 years to evaluate its dividend policy and sustainability.

The data shows an unusually high average payout ratio of 284.76% over the past 20 years for Deutsche Telekom. Several years exhibit exceptionally high payout ratios, notably 2007, 2009, 2011, and 2013, with ratios exceeding 100%, indicating the company paid out more in dividends than it earned. These anomalies significantly skew the average, suggesting extreme years where the company might have decided to reward shareholders despite low or negative earnings, or there could have been extraordinary charges affecting profitability that aren't indicative of normal operations. However, the presence of negative and excessively high payout ratios raises questions about the sustainability of such a dividend policy. Generally, a payout ratio of lower than 65% is considered healthy as it indicates a company retains enough earnings for growth while also providing dividends. Deutsche Telekom's overall figure far exceeds this threshold, which, while indicating potential generosity in returning profits to shareholders, also flags concerns for the long-term sustainability and potential financial health risks. Therefore, the interpretation of this trend as 'good' or 'bad' depends on context. For income-focused investors, high payouts in certain years might be appealing. However, from a long-term sustainability and financial prudence perspective, such high averages, influenced by extreme payout ratios, would be considered unhealthy and possibly unsustainable.

Coverage by Earnings and Cash Flow Assurance:

Dividends Well Covered by Earnings?

The dividend coverage ratio provides insight into how well a company's reported earnings per share can cover its dividend payments. This ratio is crucial for assessing the sustainability of a company's dividend payments over time. Lower ratios suggest that a company is using less of its earnings to cover dividends, which may indicate a healthy margin of safety. In contrast, a higher ratio suggests that earnings may not sufficiently cover dividends, potentially indicating a risk to dividend sustainability. We're examining this criterion for Deutsche Telekom (0MPH.IL) to understand how effectively the company's earnings support its dividend payments over an extended period.

The trend in the coverage ratio for Deutsche Telekom over the specified period indicates variance in how well earnings have supported dividends. In some years, the coverage ratio was low, suggesting that a significant portion of earnings was not consumed by dividend payments, pointing towards a healthy capacity for maintaining or possibly increasing dividends. For example, periods with lower ratios are indicating better earnings coverage for dividends, affirming a stable financial capacity for sustaining dividend payments. Conversely, there were also instances where the coverage ratio was high, which signals that earnings were just enough or even insufficient to cover dividend payments, raising concerns over the sustainability of dividends. These years with higher ratios raise red flags about the potential for dividend cuts or static dividend growth if earnings do not improve. These shifts in the coverage ratio underscore the importance of consistent earnings growth to support and potentially increase dividends over time. Overall, the fluctuating trend in the dividend coverage ratio for Deutsche Telekom highlights the varying degrees to which the company has been able to comfortably cover its dividend payments with earnings. This inconsistency may reflect broader operational or financial challenges but also points to periods of financial stability and capacity to return value to shareholders through dividends. The recent trend towards more favorable coverage ratios suggests an improving situation, potentially good news for dividend sustainability if the company can maintain or increase its earnings trajectory.

Dividends Well Covered by Cash Flow?

The criterion for dividends being well covered by cash flow is crucial in evaluating the financial health of a company. It looks at the relationship between the cash flows available to the company after operational and capital expenditures (free cash flow) and the amount of cash that is returned to shareholders through dividends (dividend payout amounts). Analyzing this coverage ratio provides insight into how comfortably a company can continue paying its dividends without compromising its operational capacity or financial stability. In this analysis, we delve into examining this ratio for Deutsche Telekom (0MPH.IL) to understand if the dividends paid out are well-supported by the free cash flow the company generates.

Analyzing the dividend coverage ratio trajectory for Deutsche Telekom reveals a fluctuating pattern over the years, with ratios ranging widely. The trend shows several periods where the ratio is below 1, indicating instances where Deutsche Telekom's earnings adequately covered its dividends, pointing towards a sustainable dividend policy during these times. However, there are also periods when the ratio exceeds 1, highlighting times when the dividends paid out were not as comfortably covered by the earnings, suggesting potential financial strain or a more aggressive dividend policy that could pose challenges to sustainability without adjustments in either free cash flow or dividend payments. Notably, there's a year where the coverage ratio went significantly above 3, revealing a critically high point of dividend sustainability concern, possibly due to a substantial decrease in free cash flow or an increase in dividend payments. Conversely, the most recent years show a decreasing trend in the coverage ratio, indicating an improvement in dividend coverage, which could be attributed to an increase in free cash flow, a decrease in dividend payouts, or a combination of both. This improvement signals a positive trend towards more sustainable dividend payments. It portrays Deutsche Telekom's potential capability to maintain or even possibly increase dividends in the future without risking its operational or financial health, assuming the upward trend in free cash flow continues and dividend policies are managed prudently.

Consistency and Longevity in Dividend Payments:

Stable Dividends Over the Past 20 Years?

Evaluating the stability of dividend payments over the past two decades is critical for income-focused investors. A company that has maintained a stable or increasing dividend payout without decreases exceeding 20% in any given year is seen as reliable and resilient, providing consistent income to shareholders. This analysis seeks to determine if Deutsche Telekom has exhibited such stability in its dividend payments from 2003 to 2023.

Looking into the provided dividend per share data for Deutsche Telekom from 2003 to 2023, we observe fluctuations. Initially, no dividends were paid in 2003, 2004, and 2005, with the first dividend payment starting in 2005 at €0.62. Subsequently, dividends increased until 2008, after which a significant jump is observed in 2009 to €1.56, more than double the previous year's dividend. This spike is followed by reductions and increases, with notable decreases in 2011 to €1.4 (from €1.7308—an approx. 19% drop), in 2013 to €0.5 (from €1.4—an approx. 65% drop), and in 2019 to €0.6 (from €1.2—a 50% drop). Such significant reductions exceed the 20% stability criterion. However, aside from these years, the trend appears generally upward, especially when considering the first payout in 2005 as a baseline. Despite this, the falls in 2013 and 2019 notably disrupt the pattern of stability, making Deutsche Telekom's dividends over the past 20 years appear unstable by the criteria set for examining dividend consistency and reliability. The trends of increases following years of significant drops demonstrate the company's potential resilience and partial recovery but indicate potential underlying volatility that may concern income-seeking investors who prioritize stability in their income investments.

Dividends Paid for Over 25 Years?

A key criterion for assessing a company's attractiveness for dividend investors is its history of dividend payments, particularly whether it has been able to consistently pay dividends for an extended period, such as over 25 years. This can indicate the company's financial stability and its commitment to returning value to shareholders. We will now look into this criterion for Deutsche Telekom (0MPH.IL), analyzing its dividends paid over the last 25 years.

The data for Deutsche Telekom shows that it has paid dividends in 22 out of the last 25 years, indicating a strong history of returning value to shareholders through dividends. There are three years (1998, 1999, and 2003) where no dividend was paid. Notably, since 2004, Deutsche Telekom resumed its dividend payments and has paid a dividend every year apart from 2013 and 2014 where dividends dropped notably to 0.5 EUR per share, after which it reverted to higher payment levels. This track record suggests a generally stable financial performance, with the capability to support dividend payments almost continuously over the assessed period. However, it's crucial to note the fluctuation in the dividend per share, especially the significant increase in 2009 and the subsequent variations in the amount paid. This fluctuation might raise questions for some investors regarding the predictability of future dividend payments. Overall, while not meeting the criteria of continuous dividend payments over the last 25 years, the strong history of regular dividends is indicative of Deutsche Telekom's underlying financial resilience and commitment to shareholders. This history can be seen as largely positive for investors looking for dividend-paying stocks, albeit with the nuances associated with the variations in annual dividend amounts.

Reliability of Stock Repurchases:

Reliable Stock Repurchases Over the Past 20 Years?

When analyzing the reliability of stock repurchases over the past 20 years, it's essential to look at both the number of shares in the market at the end of each year and the specific years during which the company actively repurchased its shares. This analysis helps investors understand the company's commitment to returning value to shareholders and managing its share dilution. We'll delve into this examination for Deutsche Telekom (0MPH.IL).

The provided data for Deutsche Telekom over the last 20 years shows a general trend of increasing shares in the market, rising from 4,195,000,000 shares in 2003 to 4,976,000,000 shares in 2023. This growth suggests that, overall, there has been a considerable amount of share issuance, which could have diluted existing shareholders. However, a detailed look into the years 2010 and 2011, the only periods when the company repurchased its stocks, captures a slight decrease in the number of shares in the market - from 4,337,600,000 shares in 2010 to 4,300,000,000 shares in each of 2011 and 2012. Despite the stock repurchases in 2010 and 2011, the significant increase in the following years to 4,976,000,000 shares in 2023 indicates that the repurchases did not have a long-term impact on reducing share count or possibly preventing dilution for existing shareholders. A possible explanation for this could be that the amount repurchased did not sufficiently counteract other equity issuances or dilutive effects from options and rewards plans. The average repurchase rate of just 0.8636 over the last 20 years positions these efforts as minimal relative to the overall share count. This infrequent and relatively small quantity of stock repurchases may suggest that Deutsche Telekom's strategy has not heavily leaned towards using buybacks as a primary method of returning value to shareholders. For shareholders, this could be seen as a negative trend, as consistent and significant buybacks often signal a company's confidence in its future and its commitment to enhancing shareholder value. Consequently, this pattern reveals a missed opportunity to potentially increase EPS and shareholder value through a more aggressive buyback strategy.