Last update on 2024-06-27

MTU Aero Engines (MTX.DE) - Dividend Analysis (Final Score: 6/8)

MTU Aero Engines dividend analysis scores a strong 6/8. Explore detailed insights on its performance, stability, and shareholder value.

Short Analysis - Dividend Score: 6

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

This analysis evaluates MTU Aero Engines' (MTX.DE) performance based on eight dividend criteria, scoring it a "6" out of 8. This suggests some strengths and some room for improvement. The company's current dividend yield is 1.6389%, higher than the industry average of 1.16%, making it potentially attractive for income-focused investors. Their payout ratio is 33.05%, lower than the 65% threshold, indicating financial prudence. However, their dividend growth rate has not consistently exceeded 5%, and their ability to cover dividends with free cash flow may pose sustainability challenges. MTU Aero Engines has shown a stable and increasing dividend payout since 2006, missing the 25-year benchmark but still offering a reliable income stream for investors. Stock repurchases are periodic rather than annual, indicating occasional but strategic buybacks.

Insights for Value Investors Seeking Stable Income

Based on the analysis, MTU Aero Engines (MTX.DE) shows promise with its high dividend yield and prudent payout ratio, but its dividend growth rate and inconsistent free cash flow coverage are concerns. Its history of stable dividends and periodic stock repurchases also indicates reliability. If you prioritize steady income and aren't exclusively fixated on high growth, this stock could be worth considering. However, be cautious of the fluctuations in cash flow and the relatively short history of dividend payments compared to the 25-year benchmark.

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 showing how much a company pays out in dividends each year relative to its stock price. A higher dividend yield can indicate a potentially better income stream for investors.

MTU Aero Engines (MTX.DE) has a current dividend yield of 1.6389%, which is higher than the industry average of 1.16%. This is a positive indicator, suggesting that MTU Aero Engines may be a more attractive option for income-focused investors compared to its peers. Over the past 20 years, MTU's dividend yield has fluctuated, peaking at 4.7497% in 2008, likely due to a combination of lower stock prices and steady dividend payments during the financial crisis. The company's ability to maintain or increase dividends over the years is commendable, demonstrating resilience and potentially strong cash flows. In recent years, specifically in 2023, the yield is back at 1.6389% after a dip in 2020 and 2021, showing recovery and growth. For context, the closing stock price in 2023 was 195.25 EUR and the dividend per share was 3.2 EUR, indicating a robust commitment to returning value to shareholders despite external market conditions. Thus, the higher-than-average dividend yield aligns with MTU Aero Engines' strategy of providing consistent returns to its investors.

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

The dividend growth rate is an important measure to evaluate how the company’s ability to increase dividends has improved over time. A higher growth rate often signals strong financial health and shareholder value generation.

Analyzing the given data, MTU Aero Engines shows a mixed performance in its dividend per share ratio over the last 20 years. Certain years like 2004, 2005, 2006, 2009, 2010, and 2014 had a dividend per share ratio of 0, possibly indicating no dividend distribution. The negative value in 2021 (-63.6628) is another point of concern. Despite this, MTU Aero Engines managed to report substantial ratios in several other years, notably 2022 and 2023 with values of 68 and 52.381 respectively. With an average dividend ratio of 11.22065%, the overall trend demonstrates a positive slope. However, the inconsistency, particularly the negative value, tempers the overall positive growth narrative. Hence, while there are strong years, the dividend growth rate hasn't consistently been over 5% across all years.

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

A payout ratio below 65% indicates that a company is retaining enough of its earnings to reinvest in its growth while still rewarding shareholders with dividends.

The average payout ratio for MTU Aero Engines over the past 20 years is 33.05%, which is significantly lower than the 65% threshold. This is a positive trend, suggesting that the company has been prudent in balancing reinvestment in growth and maintaining shareholder satisfaction through dividend payouts. While the spike to 131.13% in 2020 is a concern, likely due to the impact of the pandemic, the overall trend remains strong. Therefore, this criterion is satisfied and suggests financial stability and a shareholder-friendly dividend policy.

Dividends Well Covered by Earnings?

Dividends being well covered by earnings indicates the company's ability to sustain its dividend payouts. It is important to assess because it reflects on the company's financial stability and profitability.

Observing the trend from 2004 to 2023, the Dividend Coverage Ratios indicate that MTU Aero Engines has managed to maintain its dividend payouts in relation to its earnings, mostly below the 50% mark except for 2020. In 2020, the ratio soared above 1300%, owing largely to a significant drop in EPS ($2.62) compared to the generous dividend payout ($3.44). This could have been due to external shocks like the COVID-19 pandemic. The overall trend appears stable but the 2023 EPS drop to zero and an absence of EPS data could be alarming if sustained.

Dividends Well Covered by Cash Flow?

Examining whether dividends are adequately covered by the company's free cash flow is a critical metric because it reflects the sustainability of dividend payments to shareholders.

For MTU Aero Engines (MTX.DE), the Free Cash Flow (FCF) values fluctuate significantly over the years from 2004 to 2023, ranging from as low as -$181.7 million in 2012 to a high of $380.4 million in 2019. Similar volatility is observed in the Dividend Payout Amount, ranging from $0 in the early years to $174 million in 2023. The metric of 'Dividend covered by Cashflow' seems both highly fluctuating and concerning at several points. For example, the ratio shows negative values in 2012, 2013, 2014, and 2015, suggesting that the free cash flow was not sufficient to cover dividends in these years. Moreover, very low ratios in 2020 (0.05384615384615385) and relatively high yet only partial coverage in recent years (0.4 in 2021 and 0.3573 in 2022), indicate potential risks. Such high volatility and occasional negative coverage ratios point to a lack of consistency in cash flow management concerning dividend payouts. This inconsistency is a red flag, suggesting that the company's dividends may not be sustainably covered by its operational cash flows. For a more reliable dividend profile, MTU Aero Engines will need to stabilize its free cash flow generation.

Stable Dividends Since the Company Began Paying Dividends?

Analyzing whether the dividend payments of a company have remained stable over the past 20 years is essential for investors focused on dividend income. A drop of more than 20% in any year could indicate financial instability.

Over the past 20 years, MTU Aero Engines (MTX.DE) has demonstrated a commendable record of dividend stability. The company's dividend per share has generally followed an upward trajectory, starting from a baseline of 0 in 2004 and reaching 3.2 in 2023. The only significant deviation occurred in 2021 when the dividend dropped to 1.25 from 3.44 in 2020. Despite this drop, the reduction did not exceed the 20% threshold consistently over the 20-year span. Instead, it appears to be an isolated case likely due to external factors such as the COVID-19 pandemic rather than inherent financial instability within the company. Overall, MTU Aero Engines' steady growth in dividend payments is favorable for income-seeking investors, making it a reliable choice for consistent dividend income.

Dividends Paid for Over 25 Years?

Dividends Paid for Over 25 Years looks at whether the company has consistently paid dividends for a quarter of a century. This is crucial to assess the reliability and long-term sustainability of its dividend payouts.

MTU Aero Engines (MTX.DE) has a history of paying dividends since 2006, starting with a dividend per share of 0.73 EUR. Over the years, there has been gradual growth with a few notable fluctuations. For instance, in 2020, the dividend per share decreased to 1.25 EUR, likely due to the global COVID-19 pandemic affecting many industries. Despite this dip, the company rebounded strongly to 2.1 EUR in 2022 and 3.2 EUR in 2023. Although impressive, this payment history spans only 17 years and falls short of the 25-year benchmark. Thus, while MTU Aero Engines shows a consistent and generally increasing trend in dividends, it does not meet the stringent 25-year criterion for long-term reliability and sustainability in dividend payouts.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases refer to the consistent buying back of shares by a company over a long period. It is a signal of management's confidence in the company's future prospects and can be a means to return capital to shareholders. Stock repurchases can also help boost earnings per share (EPS) by reducing the shares outstanding.

Over the past 20 years, MTU Aero Engines has repurchased shares during eight specific years: 2006, 2008, 2009, 2010, 2011, 2012, 2019, and 2023. This demonstrates a pattern of periodic repurchases rather than consistent activity every year. The number of shares outstanding decreased from 55,000,000 in 2004 to intermittent fluctuations over the two decades, indicating NS has engaged in buybacks unevenly. The average change of -5.3858% further emphasizes the sporadic nature of their buyback program. While not consistently reliable every year, these repurchases during select periods can be considered good for shareholders when timed appropriately, reflecting management’s strategic utilization of buybacks for value creation.