Warning: Hermès (HESAY) Faces High Risk of Dividend Cut Amid Sustainability Concerns

Investors in Hermès International (HESAY) are facing a stark reality: the company’s dividend sustainability is under severe strain. Despite its storied reputation in the luxury goods sector, recent financial data paints a concerning picture of stagnant payouts, declining growth potential, and a dividend yield far below industry peers. Let’s dissect the risks and what they mean for shareholders.

Dividend Sustainability: A Fragile Foundation

Hermès’s dividend sustainability score (DSS) has plummeted to a mere 15.92%, signaling a low probability of maintaining current payout levels. This score is paired with a 38.39% Dividend Growth Potential Score (DGPS), categorizing future growth as “decrease likely.” These metrics suggest investors should brace for potential cuts rather than expecting raises.

Key Red Flags:
1. Stagnant Payouts:
- The most recent dividend of $0.367 per share (Feb 2025) offered a paltry yield of 0.128%, while an upcoming May 2025 dividend of $0.86 appears inconsistent. Historically, the 1-year growth rate is 0%, and the 3-year rate is -0.538%, reflecting a clear downward trend.

1. Sector Laggard:
2. Hermès’s dividend yield of 0.130% trails not only the top 25% of consumer cyclical sector peers (7.63%) but even the sector’s bottom 25% (0.90%). This disconnect from income-focused investor expectations is alarming.

Financial Performance: Successes vs. Dividend Trade-offs

While Hermès reported “robust results” in 2024, driven by its craftsmanship and brand equity, the benefits aren’t flowing to dividends. Key factors include:
- Capital Allocation Shifts:
- The company added 2,300 global jobs (1,300 in France) and invested in training programs like the 10 Écoles Hermès des savoir-faire and the Manufacto programme, diverting funds from shareholder returns.
- Geopolitical and Macroeconomic Risks:
- Hermès’s FAQ explicitly ties dividends to cash flow, capital needs, and market conditions, with geopolitical and climate risks further straining resources.

The Bottom Line: Risks Outweigh Rewards

The data is unequivocal: Hermès’s dividend is in peril. With a DSS of 15.92%—a level typically associated with high default risk in corporate finance—and a DGPS suggesting declines, investors should prepare for the possibility of cuts. Even the $0.86 dividend in May 2025 may prove temporary, given its inconsistency with historical trends.

Conclusion: Proceed with Caution

Hermès’s dividend sustainability crisis is a product of strategic choices prioritizing operational expansion and brand preservation over shareholder returns. With a yield near zero and growth metrics in free fall, income investors should exit or avoid HESAY. Growth-oriented investors, meanwhile, must weigh the brand’s enduring luxury appeal against the risk of capital reallocation away from dividends.

Final Takeaway:
- Dividend Yield: 0.13% vs. sector average of 7.63% (top quartile).
- Growth Trajectory: Negative 3-year dividend growth (-0.538%) versus a 2.09% 5-year average.
- Cash Flow Allocations: Capital expenditures and job creation are siphoning funds that could otherwise support payouts.

In a sector where dividends matter, Hermès’s inability to reward investors threatens its long-term appeal. Monitor cash flow trends closely—this dividend may not survive the next downturn.

Investors are advised to seek professional financial advice before making decisions based on this analysis.