Next Plc Could Help You Retire Early


A key theme for 2014 could be the rate of earnings per share (EPS) growth.

Indeed, it seems as though many market participants are expecting 2014 to be the year when the UK and world economy grew faster than since before the credit crunch (judging by various forecasts, at any rate). That’s because the price to earnings (P/E) ratios of a significant number of companies have been expanded over the last year or so.

One example of this is UK clothing retailer Next (LSE: NXT). It has gained in popularity as the market has demanded companies with strong track records of growth and tempting forecast growth potential, too.

On this front Next does not disappoint. The last four years have seen EPS growth average over 17% per year which, when the challenging nature of the UK and European economy is taken into account, shows just how well Next has performed.

Furthermore, Next is forecast to deliver steady, if unspectacular, EPS growth rates of 8% per annum over the next two years. This is slightly ahead of the average forecast for the FTSE 100 over the next two years of between 4% and 7%, so is an impressive figure even if it is less than half the amount the company has posted, on average, over the last four years.

As well as being a relatively strong growth stock, Next continues to offer an income component of total return that could still tempt some income-seeking investors.

Certainly, a current yield of just under 2% is nothing to shout about but, crucially, Next is forecast to increase the amount it pays in dividends (on a per share basis) by just under 25% over the next two years. This is far in excess of the majority of other UK-listed major stocks and, although the yield of less than 2% is considerably below the yield of the FTSE 100, it could be much higher in a couple of years’ time.

Indeed, if Next’s share price stays where it is, the increases in dividends per share could mean that shares yield around 2.4% in 2015/16. This, combined with a strong track record of EPS growth and above-average growth prospects for earnings in the near-term, mean that Next could help you retire early.

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> Peter does not own shares in Next.