Today I am looking at drinks coloussus SABMiller‘s (LSE: SAB) (NASDAQOTH:SBMRY.US) dividend outlook past 2014.
Dividend growth continues to bubble
SABMiller has an enviable record of printing dividend hikes stretching back many years, and strong double-digit earnings growth over the past four years in particular has enabled SABMiller to turbocharge the dividend. Indeed, payouts have risen at an inflation-smashing compound annual growth rate of 10.4% during the period.
And earnings are expected to continue heading northwards well into the future — a promising omen for future shareholder payouts — with a 2% rise for the year ending March 2014 anticipated to accelerate 10% in both 2015 and 2016.
Consequently, SABMiller is expected to lift the full-year dividend 8.9% this year to 110 US cents per share, and a further 9.2% in 2015 to 120.1 cents. The 2016 payout is anticipated to come in at 131.4 cents, a 9.4% on-year increase.
Prospective payments for the next three years create yields of 2.3%, 2.5% and 2.7% respectively, beating a forward average of 2.3% for the complete beverages sector but falling short of a respective reading of 3.1% for the FTSE 100.
With dividend coverage above 2.3 times forward earnings through to end-2016, above the generally-regarded security watermark of 2 times, SABMiller offers investors peace of mind over the safety of these prospective payments. As well, the brewer’s excellent cash-generating qualities should also bolster its ability to make these dividends — free cash flow came in at $1.1bn during March-September versus $843m during the corresponding 2012 period.
And while the company currently sports yields below those of its big-cap rivals, I believe that SABMiller’s terrific earnings prospects should continue to propel dividend growth rates through the roof over the long-term and bring yields closer to those of its peers.
The firm reported this week that group net producer revenues increased 4% during October-December on an organic, constant currencies basis, with total beverage volumes advancing 2% during the period.
While sales continue to lag in Western markets — revenues rose just 1% in North America and fell 6% in Europe — strident activity in emerging regions keeps on driving performance, with “mid to high single digit growth recorded in Latin America, Africa, Asia Pacific and South Africa” during the quarter.
With SABMiller extending its exposure to these markets, exemplified by the purchase of China’s Kingway Brewery Holdings for $864m in September, I believe that the company — underpinned by heavyweight brands including Grolsch and Miller — makes a sterling pick for growth and income investors alike.
