Can Amec's (LSE: AMEC) 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:
| Year | 2007 | 2008 | 2009 | 2010 | 2011 |
|---|
| Dividend per share | 19.1p | 20.2p | 17.1p | 16.2p | 18.1p |
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 Amec (LSE: AMEC).
The big question is can the company's dividend continue to out-perform its index. Let's take a closer look.
Amec is an international project management and services company. With the shares at 1007p, the market cap is £3059 million. This table summarises the firm's recent financial record:
| Year | 2007 | 2008 | 2009 | 2010 | 2011 |
|---|
| Revenue (£m) | 2,356 | 2,606 | 2,539 | 2,951 | 3,261 |
| Net cash from operations (£m) | 98 | (11.7) | 169.5 | 134 | 173 |
| Adjusted earnings per share | 36.9p | 45p | 47.8p | 64p | 71.9p |
| Dividend per share | 13.4p | 15.4p | 17.7p | 26.5p | 30.5p |
So, the dividend has increased by 128% during the last five years -- equivalent to a 22.8% compound annual growth rate.
Describing itself as one of the world's leading engineering, project management and consultancy companies, Amec serves the oil, gas, mining, clean energy, environment and infrastructure markets. The firm reckons it delivers and maintains strategic assets from environmental and front-end engineering design before the start of a project, to decommissioning at the end of an asset's life. It counts big names amongst its clients, such as BP, Shell, EDF, National Grid and the US Navy, and has offices and projects in around 40 countries employing some 29,000 people.
Recent management guidance has been upbeat. There's an order book worth about £3.6 billion and the firm's enjoying particularly good progress in the oil and gas sector. In fact, the directors are confident enough to predict double-digit revenue growth during 2013. If strong flows of free cash result from that revenue, there's every possibility of continuing progress for the dividend, too.
Amec'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 covered last year's dividend more than twice. 4/5
2. Net cash or debt: At the last count, there was net cash on the balance sheet. 5/5
3. Cash flow: cash flow has been moving with profits. 3/5
4. Outlook and recent trading: good recent trading and a positive outlook. 5/5
Overall, I score Amec 17 out of 20, which encourages me to believe the firm's dividend can continue to out-pace dividends from the FTSE 100.
Foolish summary
With net cash on the balance sheet, a well-covered dividend, and a positive outlook, the prospects for the dividend look encouraging.
Right now, the forecast full-year dividend is 37.84p per share, which supports a possible income of around 3.7%. That looks attractive to me.
Amec is one of several dividend out-performers on the London stock exchange. There's one man who's as keen as I am to find, and invest, in them. I suggest you read all about his best investment ideas now in this free, time-limited report, while you have the chance: 8 Income Plays Held By Britain's Super Investor. This free report analyses the £20 billion portfolio of legendary high-yield expert Neil Woodford. Click here to discover his favourite dividend opportunities with good growth potential.
> Kevin does not own any shares mentioned in this article.
