When looking for a top dividend stock, I’ve developed the questionable habit of starting with those that boast the highest yields.
That’s very tempting, especially today, when there are some brilliant income opportunities across the FTSE 100. But a high yield isn’t everything. Sometimes modest payouts hide a cracking track record of long-term dividend growth.
One such stock is Bunzl (LSE: BNZL). The international distribution and services group has been on my watch list for years. I’ve even called it the FTSE 100’s greatest dark horse.
It isn’t a household name. Bunzl provides essential non-sale items to businesses: things like gloves, packaging, and cleaning products. These are the supplies that keep hospitals, supermarkets and factories running smoothly.
Quiet FTSE 100 hero
But it’s not a plodding blue-chip either. Bunzl has been growing steadily through smart acquisitions. In 2024 alone it committed £883m across 13 deals, expanding its global reach. And it announced two healthcare acquisitions on 30 April, one in Chile and another in the Netherlands.
In early March, Bunzl looked in excellent health. Full-year results showed revenues up 3.1% to £11.8bn. Adjusted operating profit rose 7.2%, with margins nudging up from 8% to 8.3%. The dividend climbed 8.2%. Incredibly, this marked its 32nd consecutive year of annual dividend growth.
Over the last decade, Bunzl has increased shareholder payouts at an average compound growth rate of 7.61% a year. Yet investors wouldn’t know it was such an income superstar by looking at the modest trailing yield of 3.17%.
Then came the crunch. On 16 April, Bunzl issued a profit warning after a rough first quarter. It lowered full-year guidance, citing weaker trading in North America and pressure on margins across the UK and Europe.
Revenues rose 2.6% at constant exchange rates, but fell 0.9% on an underlying basis. North America, its biggest market, was hit by soft revenue and higher costs. European and UK operations also struggled, although the rest of world did better.
This appears to be down to a combination of Donald Trump’s tariff threats, which are a nightmare for an internationally diversified business like this one, and wider economic concerns.
Shares under pressure
The shares crashed 23.1% in a day, and they’re now down 30% in three months. Over 12 months, they’ve fallen 20%. That’s rare for a steady compounder like Bunzl.
Is this the buying opportunity I’ve been looking for? The shares now trade on a forward price-to-earnings ratio of around 12. Cheap, by its standards.
Long-term thinking required
The consensus target price from analysts is 2,772p, which would mark a potential gain of more than 18% from where we are today. But these estimates may not reflect April’s shock guidance cut.
Out of 18 analysts, nine rate Bunzl a Buy, five say Hold and four say Sell. I’m not surprised the view is mixed. Buying after a profit warning can be risky. I’ve done it lately with Diageo, JD Sports and Ocado Group, and I’m still waiting for those to come good.
Bunzl could bump along for a while too. But I like the business. For patient investors who take a long-term view, I think it’s one to consider buying.
