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What Dividend Hunters Need To Know About Reckitt Benckiser Group plc

Today I am looking at whether Reckitt Benckiser Group (LSE: RB) is an appealing pick for those seeking chunky dividend income.

Weakening earnings set to dent dividend growth

Although Reckitt Benckiser’s earnings growth has steadily decelerated over the past five years, the firm has still kept dividends rolling higher during this period. Still, the impact of slower earnings expansion has certainly had a heavy impact on dividend growth, with last year’s 2.2% increase — to 137p per share — a noticeable departure from the compound annual growth rate of 8.2% dating back to 2009.

And City analysts expect a 5% earnings slip this year to result in the dividend being kept on hold. Reckitt Benckiser is predicted to reckitt.benckiserget its predicted dividend policy back on policy next year, however, with an expected 5% earnings turnaround anticipated to underpin a 5% dividend hike to 143.9p.

Still, Reckitt Benckiser cannot exactly be considered a lucrative income pick in my opinion. Dividend projections for this year and next create yields of 2.8% and 2.9% respectively, trailing the current 3.2% FTSE 100 forward average, and yields are not expected to improve drastically beyond 2015.

Dividends growth plays second fiddle

Reckitt Benckiser could be considered a fairly-secure dividend selection at face value, with dividend coverage running at 1.9 times forward earnings through to the end of next year. This is marginally below the widely-regarded safety yardstick of 2 times earnings.

Investors can also take heart from the company’s bulging cash pile, with net cash from operating activities having risen by more than 10% last year to total £2.1bn. However, Reckitt Benckiser looks set to dedicate this hefty wad to making bolt-on acquisitions in strategic growth areas and geographies — indeed, the company confirmed in recent days that it is in talks with Merck to purchase its consumer health business.

With its focus firmly concentrated on M&A activity rather than rewarding investors with plump payouts, I believe that dividend-hungry investors can find better income selections elsewhere. Still, for those seeking bright earnings prospects from next year onwards I reckon that Reckitt Benckiser is a terrific investment, underpinned by resilient performance in emerging markets.

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Royston does not own shares in Reckitt Benckiser.