Dividend Analysis
We analyze 25+ years of dividend data and 10+ years of fundamental data to understand the safety and growth prospects of a dividend. ECL’s long-term dividend and fundamental data charts can all be seen by clicking here.
Dividend Safety Score
Our Safety Score answers the question, “Is the current dividend payment safe?” We look at factors such as current and historical EPS and FCF payout ratios, debt levels, free cash flow generation, industry cyclicality, ROIC trends, and more. Scores of 50 are average, 75 or higher is very good, and 25 or lower is considered weak.
ECL’s dividend payment is extremely safe with a Safety Score of 98. Over the last four quarters, ECL’s dividend has consumed 36% of its earnings and 32% of its free cash flow. As seen below, these levels are remarkably consistent with the company’s historical payout ratios. This means that ECL’s dividend growth has been fueled by earnings growth. For such a stable business, ECL’s payout ratios are extremely safe and provide plenty of room for dividend growth.
Source: Simply Safe Dividends
Source: Simply Safe Dividends
ECL’s performance during the last recession also adds to the dividend’s safety profile. The company’s sales fell by just 4% in fiscal year 2009, and its free cash flow generation was about flat. Customers still need to keep their food safe, facilities clean, and energy use efficient regardless of economic conditions. ECL’s sales mix contains more industrial and energy exposure today as a result of its acquisitions of Nalco and Champion Technologies, but we believe its fundamentals are still likely to be much less cyclical than the broader economy in the event of another recession.
Source: Simply Safe Dividends
ECL’s business is not capital intensive, generates strong margins, and is very consistent (90% of sales are recurring consumables). For these reasons, the company has generated dependable and growing free cash flow over the last decade:
Source: Simply Safe Dividends
The one grip we have about ECL’s dividend safety is the company’s balance sheet. ECL financed its Nalco and Champion Technologies acquisitions with a lot of debt, which it is in the process of paying down. As seen below, ECL has $6.8 billion of debt compared to $185 million of cash on hand. However, the company’s consistent free cash flow generation is reliable and easily covers ECL’s interest expenses and dividend payments.
Source: Simply Safe Dividends
Overall, ECL’s dividend is very safe. The company’s payout ratios are relatively low, it generates strong and consistent free cash flow, and the business is fairly recession-resistant.
