G4S's five-year payout has already outpaced 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 G4S (LSE: GFS), whose market cap ranks it 70th in London's premier FTSE 100 index.
If you don't know, G4S describes itself as "the word's leading international security solutions group" and its business involves putting people where they are needed to take care of security, whether that of people, buildings, cash or anything else. With the shares at 286p, the market cap is £4,026 million. This table summarises G4S's track record:
|Operational cash flow (£m)||291||373||509||448||372|
|Adjusted earnings per share||13.3p||16.6p||20.2p||21.9p||22.8p|
|Dividend per share||4.96p||6.43p||7.18p||7.9p||8.53p|
As you can see, the dividend has increased by 72% during the last five years -- equivalent to a 14.5% compound annual growth rate.
Since emerging in its current form in 2004, G4S has reported progress every year with many of its key financial indicators, including the dividend. Growth still seems on the agenda as, according to the company, there is an increasing trend from government and commercial customers to outsource integrated security solutions.
What I really like about this expanding people business is its global reach. The company has operations in more than 125 countries and 657,000 employees. It currently derives 47% of its revenue from Europe, 23% from North America and 30% from what it calls developing markets, which includes places like The Middle East, Latin America, Africa and the Asia Specific.
In today's world, it's hard to imagine demand for security services waning. Apart from the trouble spots of the world, there's always the need, somewhere, for more benign security management like the contracts involving the London Olympics that are currently boosting the G4S coffers.
G4S keeps expanding both organically and by acquisition. If the firm can tightly manage its operations, that can be a good thing. Indeed, G4S's sheer size will lift it up the security food chain and make it one of few bidders capable of servicing some big contracts.
G4S's dividend growth score
I analyse four different features of a company to judge whether its dividend can continue to rise:
1. Dividend cover: earnings cover the dividend more than twice. Score 4/5
2. Net cash/debt: net gearing is about 120% and interest cover around 4. Score 3/5
3. Cash flow: cash flow supports operating profits. Score 4/5
4. Outlook/recent trading: a reasonably secure outlook say the directors. score 4/5
Overall, I score G4S 15 out of 20, which encourages me to believe the firm's dividend may continue to out-pace dividends from the FTSE 100.
Foolish lock in
Although interest cover is reasonably good, G4S has quite a bit of debt. As long as cash flow holds up going forward that debt should be manageable. The reasonably bullish outlook is encouraging.
Right now, the forecast full-year dividend for G4S is 9.37p per share, which supports a possible income of about 3.3%. That's not tempting enough for me so G4S will stay on my watch list for now.
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> Kevin does not own any shares mentioned in this article.