Bunzl’s share price rises on profit upgrade! Time to buy for passive income?

Bunzl’s share price is continuing its recovery after a positive revision to profit forecasts. Should investors consider the FTSE 100 firm for dividends?

| More on:
Man smiling and working on laptop

Image source: Getty images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Bunzl (LSE:BNZL) share price has risen by a whopping 88% over the past decade. And while it’s down since the start of 2024, the company is staging a comeback as sales and margins show signs of recovery.

I’m looking for the best passive income shares to buy in July. And Bunzl — with its 31 straight years of dividend growth — is near the top of my shopping list.

Dividend growth at Bunzl
Created with TradingView

In fact, following an excellent trading statement today (27 June), I may finally be about to pull the trigger. Here’s why.

A stable performer

Support services giant Bunzl sells a wide range of essential products to a variety of sectors across the globe. This includes food packaging to supermarkets, disinfectant to cleaning businesses, gloves to medical professionals, and hard hards to construction companies.

Put simply, its provision of everyday goods and services helps the world go round. As a result, earnings tend to be stable at all points of the economic cycle, which in turn gives Bunzl the strength and the confidence to deliver that long-term dividend growth I mentioned above.

Profit upgrade

But the company hasn’t had it all its own way more recently. Weak trading in North America has impacted revenues and margins, and this remains a threat if interest rates fail to meaningfully backtrack from current levels.

Bunzl confirmed today that sales are likely to have dipped 3% to 4% in the first half, or 0% to 1% at stable currencies. It said that “volume reductions and deflation in our US business” will likely drive revenues lower.

However, a sharp uptick in operating margins is helping to offset this problem. Indeed, Bunzl said margins are now expected to beat 2023’s levels, which in turn prompted the firm to raise its earnings forecasts for the full year.

It said that effective margin management and the benefit of acquisitions mean that “good margin growth is expected in North America in the first half of the year and very strong margin growth in the UK & Ireland and Rest of the World.”

Bunzl also said it now expects to announce “robust revenue growth” at constant currencies for the full year.

Dividend growth

YearDividend per shareDividend growthDividend yield
202368.3p+ 8.9%2.2%
202472p (f)+ 5.4%2.3%
202576p (f)+ 5.6%2.5%
202679.3p (f)+ 4.3%2.6%

So what dooes this update mean for future dividends? Well, City analysts were expecting payouts to continue rising before Thursday’s update, as shown in the table above. Today’s news is sure to reinforce their bullish estimates.

On the downside, brokers think dividends will grow at a more modest rate than in previous years. The payouts on Bunzl shares have risen at a compound rate of around 9% since 1992.

Nonetheless, dividend growth is expected to outpace that of the broader FTSE 100. For instance, AJ Bell projects a modest 2.3% rise in cash rewards (including special dividends) for 2024. This is less than half the growth rate brokers anticipate for Bunzl’s dividends this year.

And if the business can keep its recent momentum going, analysts might actually upgrade their dividend forecasts for the short-to-medium term. I think dividend chasers should give Bunzl shares a close look right now.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Aj Bell Plc and Bunzl Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

2 of the best US growth and dividend stocks to consider!

These heavyweight US stocks have been delivering tasty investor returns for decades. Here's why they could remain great picks for…

Read more »

Investing Articles

I reckon these 2 penny shares are hidden gems worth a closer look!

Some penny shares are well-known, whereas many others go under the radar, but that doesn’t necessarily mean they aren’t potentially…

Read more »

Investing Articles

Just released: our 3 best dividend-focused stocks to buy before August [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Investing Articles

2 FTSE 100 shares with blockbuster yields investors should consider buying

Our writer has noticed that these FTSE 100 shares offer mammoth dividend yields, and reckons investors should take a closer…

Read more »

Stack of British pound coins falling on list of share prices
Investing Articles

Down 36% and yielding 7.8%, is this FTSE 250 share a bargain?

Christopher Ruane looks at a FTSE 250 share with a sizeable dividend yield and a recent record of dividend growth.…

Read more »

Investing Articles

Is Barclays one of the FTSE 100’s best bargain stocks?

Right now, Barclays' shares are cheaper than those of FTSE 100 rival stocks Lloyds and NatWest. So should I buy…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

Is a takeover offer about to boost the Rentokil stock price, and should I buy?

The Rentokil share price is up 10% on takeover rumours. Is it a stock to buy or one to be…

Read more »

Investing Articles

Here’s my Rolls-Royce dividend forecast for 2024-27!

Our writer considers whether the Rolls-Royce dividend might be reinstated in coming years, based on financial performance and stated payout…

Read more »