Great dividend stocks! Here’s the forecast for Associated British Food shares to 2027

Associated British Foods’ shares have dropped in value this year. Does this present a dip-buying opportunity for dividend investors to consider?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

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 dividend yield on Associated British Foods‘ (LSE:ABF) shares is decent rather than spectacular, at around 3%. But I believe it’s still one of the FTSE 100‘s most attractive dividend stocks to consider today.

Excluding 2020, the clothes retailer and food supplier has grown annual payouts in nine of the last 10 years alone. And dividends have risen strongly since it suspended dividends during the Covid-19 pandemic.

For the last financial year (ended September), ABF increased the ordinary dividend 33% to 63p per share. It also forked out a 27p per share special dividend.

Should you invest £1,000 in Barratt Developments right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Barratt Developments made the list?

See the 6 stocks

City analysts expect this impressive record of dividend rises to continue over the next three years at least, albeit at a lower rate.

Financial yearDividend per shareDividend growthDividend yield
202568.55p9%3.1%
202673.40p7%3.3%
202776.20p4%3.4%

Of course, past performance is no guarantee of future returns. So I need to consider carefully how realistic these projections are.

On top of this, I need to consider the potential for further share price weakness that may offset any growing dividends. ABF shares have fallen 5.5% in value over the past year.

Created with Highcharts 11.4.3Associated British Foods Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

Here’s my verdict.

Looking good

The first thing to look at is how well predicted dividends are covered by expected earnings. I’m searching for a reading of 2 times and above.

Pleasingly, Associated British Foods scores high here. For the three years to fiscal 2027, dividend cover’s between 2.8 times and 2.9 times. This provides a decent margin of safety in case profits disappoint.

In other good news, ABF’s strong balance sheet gives it added flexibility to keep growing dividends at a rapid pace. Its net debt to adjusted EBITDA ratio was just 0.7 as of September, comfortably within its target of “well under 1.5 times“.

Encouragingly, ABF says that “surplus capital may be returned to shareholders by special dividends or share buybacks” if the ratio sits below 1. It’s a pledge the company continues to make good on.

As well as paying that special dividend for last year, the firm announced a further share buyback programme. It plans to repurchase £500m of its shares up until next September.

A top FTSE stock

Things are looking bright for ABF investors chasing dividends then. But as I say, share pickers need to also consider the possibility of further price weakness that could damage returns.

Fierce competition at Primark is just one threat to the company’s market value. Other risks include rising costs, and particularly massive expenses related to its global expansion strategy.

However, I’m expecting ABF’s share price to recover robustly over time. I’m most excited by the outlook for Primark as demand for value clothing soars the world over.

And so far, the company’s store rollout programme is effectively capitalising on this opportunity. New stores in its US and European markets drove sales 6% higher in fiscal 2024.

The business also offers diversification through its robust food and ingredients divisions. On balance, I think it’s a top income stock to consider.

AI Revolution Awaits: Uncover Top Stock Picks for Massive Potential Gains!

Buckle up because we're about to dive headfirst into the electrifying world of AI.

Imagine this: you make a single savvy investment in some cutting-edge technology, then kick back and watch as it revolutionises entire industries and potentially even lines your pockets.

If the mere thought of riding this AI wave excites you and the prospect of massive potential returns gets your pulse racing, then you’ve got to check out this Motley Fool Share Advisor report – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And here’s the kicker – we’re giving you an exclusive peek at ONE of these top AI stock picks, absolutely free! How’s that for a bit of brilliance?

Get your free AI stock pick

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 Associated British Foods 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.

Like buying £1 for 51p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

More on Investing Articles

Dividend Shares

On 8.6 times earnings and a cash yield of 9%, this FTSE 250 share seems too cheap

It's been a rough week or so for UK shareholders, with the FTSE 100 and FTSE 250 both plunging. Yet…

Read more »

Smiling senior white man talking through telephone while using laptop at desk.
Investing Articles

Here’s why I just bought this gold stocks fund for my SIPP!

I think investing in gold stocks could be the best way to capitalise on bullion's bull run. Here's a top…

Read more »

Investing Articles

How much passive income an investor could earn if they put £250 a month in an ISA at 40

Harvey Jones shows how small, regular investments can flourish into a generous passive income to secure a comfortable retirement years…

Read more »

Investing Articles

Stock market chaos! 3 pieces of investing wisdom from Warren Buffett

Billionaire Warren Buffett has been investing for many decades, making some of his quotes worth remembering when markets head south.

Read more »

Investing Articles

10%+ yields! 2 cheap dividend shares to consider as the economy wilts

These great value UK dividend shares could deliver a spectacular passive income even if the global economy sinks, says Royston…

Read more »

Investing Articles

Here’s the dividend forecast for Rolls-Royce shares as Trump rocks the markets

Rolls-Royce shares have joined in the volatility over the past week. However, with the direction being largely downwards, the dividend…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

Dividend yields of up to 11%! Here are 3 UK passive income stocks to consider

Searching for ways to supercharge your passive income with UK dividend stocks? Here are three that have grabbed our writer's…

Read more »

Young Caucasian woman at the street withdrawing money at the ATM
Investing Articles

£10,000 invested in NatWest shares at the start of 2025 is now worth…

NatWest shares surged into 2025, but things have become a little more complicated in recent weeks. Dr James Fox explores.

Read more »