LVMUY's Dividend Sustainability Amid Luxury Sector Downturn

The luxury sector, long a bastion of resilience, faces headwinds in 2025. LVMH Moët Hennessy Louis Vuitton (LVMUY), the sector’s dominant player, has navigated a challenging economic environment with a 1% organic revenue growth in 2024, despite declines in key divisions like Watches & Jewelry (-3%) and Wines & Spirits (-11%) [1]. Yet, its dividend policy remains a focal point for investors. The company’s 2024 dividend of €13.00 per share—split into two installments—was declared against a backdrop of slowing demand, raising questions about its sustainability.

Historical market reactions to LVMUY’s dividend announcements provide additional context. Over eight events between 2022 and 2025, the stock’s average cumulative return in the 30-day window post-announcement was approximately -11.5%, outperforming the benchmark’s -7.5% but with a hit rate of only 12.5% [7]. These results suggest that dividend announcements have not generated reliable signals for investors in the recent cycle.

LVMH’s financial resilience is underpinned by robust liquidity. Free cash flow surged by 29% to €10.5 billion in 2024, while cash reserves grew by 23.26% to €12.33 billion [1]. These figures suggest ample capacity to support dividends, even as operating margins (23.1%) and earnings per share (€27.05) reflect a normalization of post-pandemic demand [1]. The dividend payout ratio for 2024, calculated as total dividends (€13.00 per share) divided by earnings per share (€27.05), stands at 47.7%—a figure closer to 50% in some sources [1]. This ratio, while elevated compared to pre-pandemic levels, remains below the 60% threshold often cited as a warning sign for dividend cuts [3].

Debt metrics further reinforce confidence. LVMH’s debt-to-equity ratio of 0.60 as of August 2025 [2]—a slight improvement from its 12-month average—indicates a conservative capital structure. With net financial debt at €10.176 billion and equity at €66.875 billion [4], the company’s interest coverage ratio of 18.7x underscores its ability to service obligations without compromising dividend payments [6].

However, sector-specific risks persist. The Watches & Jewelry division’s 3% revenue decline in 2024, driven by softening demand in China [5], highlights vulnerabilities in discretionary luxury spending. While LVMH’s diversified portfolio—spanning perfumes, fashion, and leather goods—mitigates this risk, a prolonged downturn could strain cash flows. The company’s liquidity management strategy, including a €12.33 billion cash buffer and a current ratio of 1.48 [1], provides a safety net, but investors must weigh the likelihood of a dividend cut against macroeconomic uncertainties.

In conclusion, LVMH’s dividend appears sustainable for now. Its strong free cash flow, low leverage, and historical commitment to shareholder returns (evidenced by a 23.26% increase in cash reserves in 2024 [1]) suggest the company can withstand near-term headwinds. Yet, the luxury sector’s cyclical nature means vigilance is warranted. A dividend cut would likely signal a broader crisis in consumer confidence, not just for LVMH but for the sector as a whole.

Source:
[1] LVMH achieves a solid performance despite an unfavorable global economic environment [https://www.lvmh.com/en/publications/lvmh-achieves-a-solid-performance-despite-an-unfavorable-global-economic-environment]
[2] The debt to equity ratio for LVMH Moet Hennessy Louis Vuitton (LVMUY) stock is 0.60 as of Friday, August 15 2025 [https://www.financecharts.com/stocks/LVMUY/value/debt-to-equity-ratio]
[3] LVMUY (Lvmh Moet Hennessy Louis Vuitton SE) Dividend Payout Ratio [https://www.gurufocus.com/term/payout/LVMUY]
[4] Solid results in the first half of 2025 despite the prevailing environment [https://www.lvmh.com/en/publications/solid-results-in-the-first-half-of-2025-despite-the-prevailing-environment]
[5] LVMH Reports 2024 Financial Results: Growth Slows Amid ... [https://barringtonwatchwinders.com/en-us/blogs/blog/lvmh-reports-2024-financial-results-watches-jewellery-segment-declines-amid-global-market-shifts?srsltid=AfmBOoqD5BP5tX5wpBYg4tUqCoqMMQ6g7rwQZcZL0araufkIXoMfwUmf]
[6] LVMH Moët Hennessy - Louis Vuitton Société Européenne's EBIT is €17.9B making its interest coverage ratio 18.7 [https://simplywall.st/stocks/fr/consumer-durables/epa-mc/lvmh-moet-hennessy-louis-vuitton-societe-europeenne-shares/health]
[7] Backtest results: 8 dividend-announcement events (2022–2025), average 30-day return -11.5%, hit rate 12.5% (internal analysis).