Payout Analysis

Avon's Payout Ratio

Avon’s Payout Policy

This section analyzes the payout policy for Avon Products over the past five fiscal years. We have determined the dividend growth, the total share repurchases, dividend payout, and the total payout of the firm using the last five 10-Ks.

Dividend Yield

For this calculation we have divided the dividend per share by the end of year share price. This number has increased in recent years due to minor increases in the quarterly dividends but also by large decreases in the end of year share price.

Dividend Growth

Growth is determined by taking the current dividend and dividing by the previous year’s cumulative dividend and then subtracting 1 from the answer. Avon Corporation has maintained a steady increase in its dividend for the past five years although the growth has slowed somewhat.

Dividend Payout Ratio

The dividend payout ratio is found by dividing the yearly per-share dividend by the EPS. Since the annual dividend maintains steady but minimal growth, the great swings in the payout ratio are mainly a result of changes in the net income earned by the firm. In 2008 the high net income brought dividend payout to 39%, while in the most recent 10-K the payout is about 78% despite only minor increases in dividends.

Total Payout Ratio

The total payout is calculated by adding up the total dividends and the total repurchases of stock and then dividing this number by the net income of the corporation. In 2007 an extremely high payout can be attributed to large share repurchases in order to payout excess cash reserves, which granted the company a payout far larger than the year’s income. Since then the payout has been between 59 and 80%, increasing due to losses in stock value and slight growth in dividends.

Payout Analysis (in millions except per share data) 2007 2008 2009 2010 2011
Dividends Per Share 0.74 0.8 0.84 0.88 0.92
year-end Share Price 39.53 24.03 31.5 29.06 17.47
Dividend Yield 1.87% 3.33% 2.67% 3.03% 5.27%
Dividends Growth 5.71% 8.11% 5.00% 4.76% 4.55%
EPS 1.22 2.05 1.45 1.4 1.18
Dividend Payout Ratio 60.66% 39.02% 57.93% 62.86% 77.97%
Total Dividends 322.7 347.7 364.7 384.1 403.4
Total Repurchases 673.2 172.1 8.6 14.1 7.7
Total Payout 995.9 519.8 373.3 398.2 411.1
Net Income 531 875 626 606 514
Total Payout Ratio 187.55% 59.41% 59.63% 65.71% 79.98%

 + Competitor's Payout Ratios
Competitor Payout Policy
Our group calculated the same ratios for 5 of Avon's competitors in order to see what Avon's competitors payout policies were. The data was found using morningstar, yahoo! finance, and the most recent 2011 10-k reports for the companies. The information reflects 2011 data.

 Payout Analysis (in millions except per share data) Elizabeth Arden Revlon L'Oreal Estee Lauder Ulta Avon
Dividends Per Share 0 0 0.36 1.05 0 0.92
year-end Share Price 37.35 14.87 80.34 56.16 64.92 17.47
Divident Yield 0.00% 0.00% 0.45% 1.87% 0.00% 5.27%
Dividends Growth 0.00% 0.00% -5.26% 40.00% 0.00% 4.55%
EPS 1.47 1.02 4.11 1.78 1.96 1.18
Dividend Payout Ratio 0.00% 0.00% 8.76% 58.99% 0.00% 77.97%
Total Dividends 0 0 1076 152.76 0 403.4
Total Repurchases 13.7 0 0 13.1 3.2 7.7
Total Payout 13.7 0 1076 165.86 3.2 411.1
Net Income 41 53 2440 701 120.3 514
Total Payout Ratio 33.41% 0.00% 44.10% 23.66% 2.66% 79.98%
Industry Average
Dividend Yield 1.26%
Dividend Payout Ratio 24.29%
Total Payout Ratio 30.64%

Dividends Per Share
Estee Lauder is the only competitor that pays more annualized dividends than Avon. L'Oreal was the only other competitor to payout dividends. Most of the companies didn't even payout dividends, and dividends for these firms are generally lower than other industries.

Dividend Yield
Avon has the highest dividend yield compared to all of its competitors in the industry. The 5 competitors have extremely low dividend yields. An investor would look to Avon as the highest yield stock as they also have a dividend payout ratio of 77.97%.

Dividend Payout Ratio
The average dividend payout ratio for the 6 companies is about 18%. Estee Lauder and Avon are the only 2 companies that have over a 20% dividend payout ratio.

Total Payout Ratio
The total payout ratio for each company was under 100% with Avon's being the highest at just under 80% for 2011. The next highest ratio is L'Oreal which has a ratio of 44%. Avon typically had a higher ratio than the rest of the companies but this was basically because three of the other companies did not issue any dividends. Since the cosmetic industry has a direct correlation to the rest of the economy, the industry as a whole has not been performing well in recent years contributing to the low payout ratios.

Resons for Dividend Policy

Avon has increased their payout ratio every payout since 1991 except for their most recent dividend which they decreased from $.23 per share to $.06 per share. Avon has continully increased their dividend showing their sharholders that they are a sucessfull thriving company. One reason that their dividend did not increase this past year in becuase of the economy and that their thirs quater revenue was down by 8%. Since dividens are seen as sticky by the market, Avon is hesitant to increase the payout dividens that they know thy will have to continue to payout each payout period. By lowering their dividens they can again gradually increase them over time to show their profitablilty at a lower cost to the company. Avon had previously told their sharholders athat their dividend had the possibility of decresing becuase of their operation preformance in the market alon gwith the industrys preformace. Avon is hoping that their decrease in dividend alonf with their imporivng workign capital will allow them to have more cash to invest and use in order to increase the productivity and profits of the company. This is why Avon has focused on repurchases in their most recent payout rather than giving their investors dividens. Another reason is that in 2012 Avon completed their 5 year repurchase of $2 Billion in their common stock. Respurchases are not new for avon as they have had a respurchase plan system in their company since 1994.

Grades
1.55/2

Didn't use 10-Q to update through September. Part 4 deduction: Part IV spreadsheet not originally uploaded. It was obvious from wiki results that they had problems. Now that spreadsheet is uploaded, the source of the errors is obvious, but errors are not corrected.

Unless otherwise stated, the content of this page is licensed under Creative Commons Attribution-ShareAlike 3.0 License