Cobham's five-year payout has already out-paced that of the wider market.
The last few years have been tough for investors relying on the FTSE 100 (UKX) to deliver a rising dividend payout.
Looking at the iShares FTSE 100 ETF (LSE: ISF), an exchange-traded fund that tracks the benchmark index, we can see the aggregate payment from Britain's top 100 companies has yet to regain its pre-recession peak:
|Dividend per share||19.1p||20.2p||17.1p||16.2p||18.1p|
Still, there are companies out there that, despite the banking crash and gloomy economy, have managed to deliver a rising dividend throughout the last five years. One such name is FTSE 250 company Cobham (LSE: COB).
If you don't know, Cobham is an international aerospace and defence company whose products and services find their way into military and civil systems. It's been trading for more than 75 years, and has three divisions employing around 10,000 people with customers in 100 countries or so.
With the shares at 226p, the market cap is £2.6 billion. This table summarises Cobham's track record:
|Earnings per share||11.0p||8.8p||16.2p||13.2p||16.8p|
|Dividend per share||4.5p||5.0p||5.5p||6.0p||8.0p|
As you can see, the dividend has increased by 78% during the last five years -- equivalent to a 15.5% compound annual growth rate.
Cobham's strategy is to build positions in faster-growing markets, with a high-technology focus. The group develops leading edge and technically differentiated products and services, and expands both organically and through targeted acquisitions, such as Satcom business Thrane and Thrane recently.
The strategy seems to work, as recent contract wins have seen the order book jump by 25% to £2.5billion in the first quarter of 2012 alone.
But what I really like about Cobham is the consistently strong current of cash flow that its operations generate. The firm seems to command a technical edge that keeps its services strongly in favour with its customers. This happy situation has enabled a robust balance sheet and a commitment to dividend growth.
Cobham's dividend-growth score
I analyse three different features of a company to judge whether its dividend can continue to rise:
1. Dividend cover: earnings covered the last dividend just over twice. Score 4/5
2. Net cash/debt: net gearing is modest around 23%. Score 4/5
3. Outlook/recent trading: modest progress is expected this year. Score 4/5
Overall, I score Cobham 12 out of 15, which encourages me to believe the firm's dividend can continue to out-pace dividends from the FTSE 100.
While the world has been fretting over economic concerns, Cobham has been getting on with the development of its aerospace and defence business. It has chalked up an impressive £500m or so in new business already this year and the execution of that is likely to be highly cash generative if past performance is a guide.
And converting new business into cash is just what's needed to maintain a progressive dividend policy. Indeed, I reckon the outlook for Cobham's dividend is good. Right now, the forecast full-year dividend is around 8.6p per share, which supports a possible income of 3.8%.
Given the impressive dividend growth rate that Cobham has achieved recently, the shares and today's potential income look attractive to me.
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> Kevin does not own any shares mentioned in this article.