I’m looking for the best FTSE 100 shares to supercharge my passive income. And on paper, Burberry Group (LSE:BRBY) looks like it could be a perfect buy for dividend investors like me. Here’s why.
A luxury stock
The retail sector is plagued with uncertainty heading into 2023 as the global economy cools. But designers of high-end goods like Burberry could still thrive, given that their core clientele is broadly immune to the cost-of-living crisis.
Analysis from McKinsey & Company backs up this line of thought. It expects the luxury sector to grow between 5% and 10% next year “as wealthy shoppers continue to travel and spend”.
Strong sales growth in 2023 is dependent on a healthy Chinese retail sector. And as the Covid-19 crisis there endures, the sales outlook for Burberry remains cloaked with uncertainty.
However, it could be argued that this threat is baked into Burberry’s rock-bottom share price. Today, the business trades on a forward price-to-earnings growth (PEG) ratio of 0.7. A reading below 1 indicates a stock is undervalued.
Refreshed strategy
Now might be a great time to buy the fashion brand too, as it embarks on an ambitious new growth plan.
Burberry already had a strong plan under its Italian CEO and Italian creative chief (focus on ultra luxury and boost its appeal to the youth market), but the pandemic partly got in the way of that. Post-pandemic, its new British CEO Jonathan Akeroyd brought in Bradford-born Daniel Lee as its new chief creative officer. Together, they’ll “refocus on Britishness and strengthen our connection with British design, craft and culture”.
Burberry is also looking for double sales of its leather goods, shoes and women’s ready-to-wear lines under its new growth strategy. It’s seeking to boost outerwear revenues by roughly 50% in the medium term and to generate more than half of group sales from its accessories beyond that.
Latest financials showed leather goods sales jump 15% in the three months to September. Little wonder the company is doubling down on these product ranges then.
Dividend growth
In truth, Burberry isn’t the greatest income share to buy for investors seeking big dividends today. For this financial year (to March 2023) its dividend yield sits at a decent-if-unspectacular 2.7%.
But predictions of solid and sustained dividend growth suggest it might still be a great income stock to invest in. City analysts think this year’s total payout will rise 17% to 55.1p per share. And high-single-digit hikes are expected for the following two years. This culminates in a 64.2p full-year payout in fiscal 2025.
The verdict
Having said all of that, I won’t be buying Burberry shares for my portfolio in 2023. That’s not because the business looks to me like a bad investment. It’s because luxury fashion isn’t something I’m particularly familiar with.
I don’t know how to identify which direction the industry is moving in. And like legendary investor Warren Buffett, I’m not prepared to invest in stocks whose operations I don’t fully understand.
But for investors with knowledge of the company and its markets, I think Burberry shares warrant serious attention today. I think they could be a great way to generate excellent long-term income.
