Many top FTSE 100 companies are currently offering dividends well above the interest you can get from cash or bonds — and with the potential for real future income growth
In this series of articles, I’m assessing how some of your favourite blue chips measure up as potential income-generators, by looking at dividends past, dividends present and dividends yet to come.
Today, it’s the turn of Wm. Morrison Supermarkets (LSE: MRW) (NASDAQOTH: MRWSY.US).
Dividends past
The table below shows Morrisons’ five-year earnings and dividend record.
| 2008/9 | 2009/10 | 2010/11 | 2011/12 | 2012/13 | |
|---|---|---|---|---|---|
| Statutory earnings per share (EPS) | 17.39p | 22.80p | 23.93p | 26.68p | 26.65p |
| Underlying EPS | 16.67p | 20.47p | 23.03p | 25.55p | 27.26p |
| Ordinary dividend per share | 5.8p | 8.2p | 9.6p | 10.7p | 11.8p |
| Dividend growth | 20.8% | 41.4% | 17.1% | 11.5% | 10.3% |
As you can see, Morrisons has delivered super-strong dividend growth over the last five years. The average annual increase works out at a hugely impressive 20.2% — light years ahead of inflation.
The total of 46.1p a share paid over the period was covered a robust 2.5 times by total underlying EPS of 112.98p. Companies’ underlying EPS numbers are often more flattering than the statutory version, but not in Morrisons’ case: statutory EPS of 117.45p is modestly higher than the underlying number.
One important thing to note is that when grandee Sir Ken Morrison retired from the board of directors in 2008, management decided that the Yorkshireman’s belt-and-braces idea of dividend cover was overly cautious, and resolved to reduce cover to the sector average of around 2.5 — hence the eye-popping dividend increases through to 2010/11.
The board then confidently committed to giving shareholders annual dividend increases of at least 10% for the next three years — and has delivered in the first two, but at a cost of dividend cover slipping to 2.3.
An overall superb dividend performance through difficult economic times, although achieved by increasing dividends faster than earnings.
Dividends present
Morrisons’ has so far paid an interim dividend of 3.84p for the current year (ending 2 February). The analyst consensus is for a final dividend of 8.96p when the company announces its annual results on 13 March — giving a 2013 full-year payout of 12.8p (up 8.5% on 2012/13).
Analysts, then, are expecting Morrisons to renege on its three-year commitment to 10% dividend growth in the final year. The company has begun to struggle in a competitive trading environment, and analysts’ EPS forecasts suggest dividend cover on a 12.8p payout would slide down four notches to 1.9.
At a share price of 245p, the forecast current-year dividend represents a yield of 5.2%.
Dividends yet to come
A poor Christmas trading update from Morrisons — like-for-like sales fell 5.6% — has spooked analysts to the extent that many see a flat dividend or even a cut just around the corner. The consensus for 2014/15 is for a dividend a tad below the 12.8p forecasted for the current year — and dividend cover slipping further, to 1.8.
However, recent rumours that US activist investors are pushing Morrisons to extract value from its property portfolio (thought to be worth about £10bn compared with the company’s market capitalisation of £5.7bn), could be positive for supporting dividends or other cash returns to shareholders. It’s a case of watch this space.
With much uncertainty in the air, it may be prudent to wait for the company’s new dividend policy, expected to be announced with the annual results on 13 March.
