Can Burberry Group's dividend continue to beat the wider market?
In an outcome that's tough on investors, the FTSE 100 (UKX) has failed to deliver a rising dividend payout over the last few years.
Just look at the iShares FTSE 100 ETF (LSE: ISF), for example. This is an exchange-traded fund that tracks the benchmark index, and 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|
That's disappointing. But some companies within London's premier index have performed well on dividends, despite these austere times, and this series aims to seek them out. One such name is Burberry Group (LSE: BRBY).
The big question is can Burberry's dividend continue to outperform its index. Let's put the firm under scrutiny and test its financial mettle.
Burberry owns the well-known check pattern brand. It sells products through directly operated stores, department stores and specialty retailers around the world.
With the shares at 1392p, the market cap is £6,137 million. This table summarises the company's recent financial record:
|Year to 31 March||2008||2009||2010||2011||2012|
|Net cash from operations (£m)||45||210||369||265||374|
|Adjusted earnings per share||32.4p||30.6p||35.9p||49.9p||62.8p|
|Dividend per share||12p||12p||14p||20p||25p|
So, the dividend has increased by 108% during the last five years -- equivalent to a 20.1% compound annual growth rate.
Burberry can trace its evergreen brand back to its establishment in 1856. You'd think people would get bored with it over the decades, but the quintessentially English check pattern appears to retain its appeal to trendy people around the world, judging by sales.
Clothing accounts for 61% of worldwide sales and the company finds imaginative uses for the pattern to generate the remaining 39%. Of those sales, 37% come from the fast-growing Asia Pacific region, 32% from Europe, 25% from The Americas and 6% from the rest of the world.
At the last count, Burberry had 451 direct retail outlets and 58 franchises.
I wouldn't want to bet on Burberry falling out of fashion any time soon after such a long history, and considering recent demand from newly affluent countries abroad. If the firm continues to convert that demand to cash flow, the prospects look good for the dividend.
Burberry's dividend growth score
I analyse four different features of a company to judge whether its dividend can continue to rise:
1. Dividend cover: both earnings and free cash cover the dividend around 2.5 times. 4/5
2. Net cash or debt: net cash on the most recent balance sheet. 5/5
3. Cash flow: cash flow supports profits and both trending up. 5/5
4. Outlook and recent trading: both the outlook and recent trading are both robust. 5/5
Overall, I score Burberry 19 out of 20, which encourages me to believe the firm's dividend can continue to outpace dividends from the FTSE 100.
With robust cash flow, zero debt and a bullish outlook, Burberry appears to be at the top of its game.
Right now, the forecast full-year dividend for Burberry is 29.19p per share, which supports a possible income of 2.1% for 2013. Although the business is performing well, at that level Burberry will have to stay on my watch list for the time being.
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> Kevin does not own any shares mentioned in this article.