Today I am discussing why I believe a resumption of Marks & Spencer’s (LSE: MKS) (NASDAQOTH: MAKSY.US) progressive dividend policy makes it an attractive stock market selection.
Dividends set to resume upward path
British retail giant Marks & Spencer has not had an easy time in recent years, as plans to resuscitate its ailing sales performance have failed to significantly take off. The dual effect of consistent pressure on UK consumers’ wallets, combined with its clothing lines once more falling sharply out of fashion, have weighed on group revenues.
Indeed, this steady pressure on the bottom line has led the shopping icon to keep its full-year dividend on hold, at 17p, for the past three years amid poor earnings performance. But in my opinion, investors can look forward to increasingly lucrative dividends as the firm’s sophisticated expansion strategy gains traction.
Make no mistake: Marks & Spencer still has work to do to shake off the bland and old-fashioned image which it sports on the UK high street. However, in its overseas markets the company is looked at much differently, with foreign shoppers taking a shine to what they view as a British shopping institution centred on providing excellent quality at honest prices.
While total UK sales advanced just 2.7% in April-June, transactions at its International division surged 8.7% during the period. Marks & Spencer noted that it had “performed well across most of the markets we trade in, especially in our key markets of India, China and the Middle East”. It has also seen conditions stabilise across its operations in Europe in recent months.
And the retailer is latching onto excellent growth overseas through wide-scale store openings, improving the number of franchises it operates, and boosting its online channels across the globe. And with earnings expected to ignite from this year onwards — the City’s analysts have pencilled in earnings per share growth of 3% and 13% for the years ending March 2014 and 2015 respectively — dividends are expected to trail higher once again.
17.6p dividend per share
Current projections are for a dividend of 17.6p per share for the current 12-month period, a 3.5% annual increase from last year. And this is anticipated to advance to 19.1p in fiscal 2015, a further 8.5% rise. These payments currently carry yields of 3.7% and 4% correspondingly, ahead of the 3.3% FTSE 100 forward average and prospective readout of 2.2% for the complete general retailers sector.
