Adecco Group AG (AHEXY): Is Its High Dividend Sustainable Amid Rising Financial Risks?

For income-focused investors, Adecco Group AG (AHEXY) presents a paradox: a historically high dividend yield paired with a deteriorating financial profile. While the company's recent dividend payout ratio of 60.90% (as of August 2025) appears more sustainable than its three-year average of 123.91%, the broader picture reveals structural risks that could undermine long-term dividend stability. This analysis explores how investors can avoid dividend traps by dissecting AHEXY's payout sustainability, leverage concerns, and historical dividend trends.

Dividend Payout Ratio: A Double-Edged Sword

AHEXY's current payout ratio of 60.90%—calculated as trailing twelve months (TTM) dividends of $206.305 million divided by TTM net income of $338.763 million—suggests improved financial discipline compared to its 271.48% five-year average. This reduction, which follows a sharp decline from 148.97% in April 2025, indicates management is prioritizing retained earnings for reinvestment or debt reduction. However, the negative dividend growth (-55.39% TTM, -2.98% three-year CAGR) tells a different story. Even with a lower payout ratio, the absolute dividend amount has shrunk, signaling a company in defensive mode.

The key question is whether this lower payout ratio is a temporary adjustment or a permanent reset. AHEXY's operating income of €115 million in Q2 2025 (up 6% YoY) provides some cushion, but its EBITA margin of 2.5%—down 60 basis points YoY—highlights thin profitability. If earnings volatility persists, even a 60% payout ratio could strain cash flow.

Leverage Risks: A Debt-Driven Dilemma

AHEXY's debt-to-equity ratio of 1.14 (June 2025) is a stark warning for investors. This exceeds the Business Services industry median of 0.38 and suggests aggressive debt financing. With $4.212 billion in total debt (including $788 million short-term and $3.424 billion long-term) and $3.686 billion in equity, the company's leverage is among the highest in its sector.

The interest expense burden further compounds the risk. In Q2 2025, AHEXY reported €75 million in interest expenses, with a full-year guidance of €75–80 million. At an EBIT of €115 million, the implied interest coverage ratio of ~1.5x is perilously low. For context, a coverage ratio below 2x is often a red flag for credit rating agencies. While AHEXY plans to repay a CHF 225 million bond in Q4 2025, its net debt/EBITDA ratio of 3.6x remains far above its 2027 target of 1.5x.

The company's debt structure offers some relief: 80% of its debt is fixed-rate, and it has an undrawn €750 million revolving credit facility. However, with interest rates at multi-decade highs, refinancing risk looms large. A 1% rate increase would add ~€6 million in annual interest costs—a non-trivial hit for a company with razor-thin margins.

Historical Dividend Trends: A Cautionary Tale

AHEXY's dividend history is a textbook example of a dividend trap. The TTM dividend growth rate of -55.39% and a three-year CAGR of -2.98% reflect a company that has cut dividends repeatedly. This trend aligns with its deteriorating financial health: from 2020 to 2025, AHEXY's EBITDA margin fell from 5.1% to 2.5%, while its debt load ballooned.

The recent 60.90% payout ratio is a positive step, but it masks the fact that AHEXY's dividend is now 55% lower than its peak. For income investors, this raises a critical question: Is the current yield (which likely exceeds 5%) worth the risk of further cuts?

Actionable Insights for Income Investors

1. Monitor EBITDA and Debt Reduction Progress: AHEXY's 2027 target of net debt/EBITDA ≤1.5x is ambitious but achievable only if EBITDA grows significantly. Investors should track quarterly EBITDA reports and debt repayment milestones.
2. Assess Earnings Volatility: With a 2.5% EBITA margin, AHEXY has little room for error. A 10% drop in earnings would push the payout ratio to ~68%, straining cash flow.
3. Compare with Peers: AHEXY's dividend yield may look attractive, but its leverage and interest coverage metrics are among the worst in the Business Services sector. Consider alternatives with stronger balance sheets.
4. Factor in Macroeconomic Risks: AHEXY's exposure to global labor markets makes it vulnerable to recessionary pressures. Rising interest rates or a slowdown in staffing demand could force further dividend cuts.

Conclusion: A High-Yield Mirage?

AHEXY's dividend appears sustainable in the short term, but its financial risks—high leverage, thin margins, and a history of cuts—make it a high-risk proposition for income investors. While the 60.90% payout ratio is a step in the right direction, it is not a guarantee of stability. Investors should treat AHEXY as a speculative play on its turnaround plan rather than a reliable income source. For those seeking safer alternatives, companies with payout ratios below 50%, debt-to-equity ratios under 1x, and positive dividend growth offer a more secure path to long-term income.

In the end, the lesson from AHEXY is clear: dividend yields can be misleading. True sustainability requires a company to balance generosity with financial prudence—a balance AHEXY has yet to achieve.