Last update on 2024-06-28

Autoliv (ALV) - Dividend Analysis (Final Score: 7/8)

Discover the fiscal health and sustainability of Autoliv (ALV)'s dividend policy with our detailed 8-criteria analysis, scoring a remarkable 7/8.

Short Analysis - Dividend Score: 7

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

Autoliv (ALV) has a strong dividend yield at 2.414%, higher than the industry average. It shows a good average annual payout ratio of 39.45%, which is below the 65% threshold. ALV has paid dividends for over 25 years and runs a reliable stock repurchase program. However, the company’s average annual dividend growth rate is inconsistent, with notable drops during 2009 and 2020. The dividends are generally well-covered by both earnings and cash flow, but there are periods of volatility that could indicate risk during economic downturns.

Insights for Value Investors Seeking Stable Income

Autoliv (ALV) is a mixed but generally positive investment option for dividend-focused investors. Its strong yield, solid payout ratio, and long history of dividend payments are all appealing. However, potential investors should be mindful of the volatility in dividend growth and coverage ratios, especially during economic crises. It's worth considering for those seeking income through dividends, but a cautious and well-rounded analysis is recommended.

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 is a financial ratio that computes the quantity of cash dividends paid to shareholders relative to the market value per share. It is a vital metric for investors seeking income through cash flow as it demonstrates the yield obtained on their investments from dividends alone. Higher yields can attract income-focused investors, offering them a higher return on their equity investments.

Autoliv (ALV) boasts a dividend yield of 2.414%, which is competitively above the industry average of 2.23%. Historically, ALV's dividend yield has demonstrated considerable fluctuations over the last 20 years, spiking as high as 7.4557% in 2008 to a low of 0.4843% in 2009. Generally, its yield has been variable, reflecting market conditions, the company's earnings performance, and strategic dividend policies. While the present above-average yield is favorable, prospective investors should weigh this against historical volatility. Higher yields are attractive, but consistency and growth in dividends also matter. ALV's current yield signifies a relatively appealing return in an industry marked by more modest averages.

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

The historical dividend growth rate is a critical metric to assess the long-term sustainability and attractiveness of a company's dividend policy. A consistent growth rate above 5% over two decades showcases financial stability and shareholder return commitments.

Analyzing the dividend per share ratio from 2003 to 2023 for Autoliv (ALV), we observe fluctuating values with significant drops and rises over the years. The average dividend ratio stands at 26.64%, indicating a notable return on investments. However, the erratic pattern, especially the years with negative ratios, raises concerns regarding consistency. For instance, 2009 witnessed a dramatic -86.87%, while 2010 experienced an astonishing rise to 209.52%. Although the overall average suggests a favorable outlook, the inconsistency means that the criterion of having a growth rate consistently above 5% over the last 20 years might not be adequately met, representing a mixed trend.

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

A payout ratio represents the percentage of earnings a company distributes to its shareholders as dividends. A ratio below 65% is often preferable as it suggests financial stability and the retention of earnings for growth projects.

The average payout ratio for Autoliv (ALV) over the last 20 years is approximately 39.45%, which is well below the 65% threshold. This is generally a good indicator of financial health and sustainability. The company has maintained a conservative approach by paying less than half of its earnings as dividends, allowing it to reinvest a significant portion back into the business. Exceptions in 2009 and 2018 with payout ratios of 126.08% and 97.60% respectively could indicate periods of financial stress or exceptional dividends. Overall, this trend supports long-term growth and dividend reliability.

Dividends Well Covered by Earnings?

This criterion assesses whether a company's dividends are sufficiently covered by its earnings. It's vital to ensure dividend sustainability, indicating that the company generates enough earnings to pay dividends without compromising its financial health.

From 2003 to 2023, Autoliv's Earnings Per Share (EPS) fluctuates significantly, yet the Dividend Per Share (DPS) displays a steady increase. In years like 2009, the EPS dropped starkly to 0.12, while maintaining a visible dividend at 0.1513, reflecting a payout above the earnings. Similarly, the cover ratio is above 1 in 2009 (1.26), indicating inconsistency in EPS. However, most years, the coverage ratio remains below 1, averaging around 0.3-0.4. This suggests a consistent yet cautious payout strategy. Though the steady dividend increase fosters investor confidence, prolonged low coverage ratios risk dividend cuts. It's positive but requires monitoring for EPS consistency.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow reflects the strength of a company's ability to distribute dividends from its underlying cash flows. This indicates the sustainability of dividend payments and overall financial health.

When analyzing Autoliv (ALV), the dividend coverage ratio—the quotient of free cash flow to dividend payout amount—fluctuates drastically over the years. Notably, in 2009 and 2010, the ratios hit very low points of 0.05 and 0.08 respectively, raising concerns about sustainability during those years. Contrastingly, in 2018 and 2020, the ratios soared to 7.00 and 1.32, reflecting ample coverage. Recently, for 2022 and 2023, the ratios stand at 1.75 and 0.55 however the outcome still swings, reflecting a inconsistent pattern. This volatility suggests that while ALV occasionally generates enough free cash flow to comfortably cover dividend payouts, there are periods where it struggles, potentially putting future dividends at risk.

Stable Dividends Since the Company Began Paying Dividends?

We need to examine the dividend payments of Autoliv (ALV) over the past 20 years and ensure there have been no drops of 20% or more, which signals stability and reliability for income-seeking investors.

The data provided for the dividend per share (DPS) of Autoliv (ALV) spans the years from 2003 to 2023. Starting from a DPS of $0.3891 in 2003, the dividends steadily increased, reaching $2.66 in 2023. However, there were fluctuations worth noting: 1. In 2009, the DPS dropped to $0.1513 from $1.1527 in 2008, a significant decrease of approximately 86.87%. This drastic cut appears during the period of the global financial crisis, indicating a potential vulnerability during extreme economic downturns. 2. Another significant drop occurred in 2020 when the DPS decreased to $1.24 from $2.48 in 2019, a 50% reduction. This decline correlates with the economic impact of the COVID-19 pandemic on global markets. Despite stable increases in most years, these two instances of reductions greater than 20% highlight potential risks during severe economic crises. Therefore, for income-seeking investors, while Autoliv generally maintains steady dividends, these exception years must be considered carefully. The trend reflects resilience but also susceptibility to extraordinary economic downturns.

Dividends Paid for Over 25 Years?

The history of consistent dividend payments over a long period, such as 25 years, is a strong indicator of a company's financial stability and commitment to returning value to shareholders. It is an important factor for income-focused investors.

Autoliv (ALV) has been paying dividends consistently from 1998 to 2023, indicating a stable and reliable track record of returning value to shareholders for over 25 years. The company’s ability to sustain and increase its dividend payout over such a long period shows its resilient financial health and effective management. Notably, the dividends per share have generally increased over this period, from $0.317 in 1998 to $2.66 in 2023. This upward trend, despite minor fluctuations, particularly during 2009 and 2020, is indicative of the company's growth and profitability. However, the decrease in dividends during specific years such as 2009 and 2020 could be attributed to global economic challenges like the financial crisis and COVID-19 pandemic, respectively. Generally, the consistently increasing trend in dividends is a positive indicator for shareholders, painting a promising picture for income-focused investors looking at Autoliv as a potential investment.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases indicate a company’s commitment to returning capital to shareholders while also suggesting that management believes the stock is undervalued.

Autoliv has demonstrated a relatively consistent stock repurchase program over the past two decades, with notable decreases in the number of shares in several years such as 2004, 2005, 2006, 2007, 2008, 2014, 2015, 2017, 2019, 2022, and 2023. The average yearly share reduction is approximately -0.4442, which indicates a consistent effort in reducing the share count. This trend is positive as it reflects confidence from the management in the intrinsic value of their stock and their commitment to enhancing shareholder value. Furthermore, buybacks can positively impact financial metrics such as earnings per share (EPS) by reducing the outstanding share count, potentially making the stock more attractive to investors. However, there were years with share increases due to dilution, which slightly mitigates this positive trend but does not overshadow the overall commitment to repurchases.