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1 Reason I’d Buy Wm. Morrison Supermarkets plc Today

Today I am looking at why Wm. Morrison Supermarkets’ (LSE: MRW) dividend outlook is an exciting proposition.

Yields simply cannot be ignored

Morrisons has, of course, been one of the biggest losers of 2014, as a backdrop of continued sales pressure and a spluttering transformation plan have pushed shares heavily to the downside. Prices have fallen almost a third since the turn of the year to current lows around 180p per share, the cheapest for almost a decade.

Still, for those sniffing out a bargain income stock, the beleaguered grocery chain could provide huge rewards for more risk-tolerant investors, or indeed those who believe the firm is on the cusp of a remarkable turnaround.

Morrisons has a long-standing reputation as a generous income stock, supported by a backdrop of steady earnings growth. And even though morrisonsthe company recorded a rare 8% earnings decline in the year concluding February 2014, the firm still lifted the full-year payout from 11.8p to 13p per share.

And although City analysts expect the supermarket to punch a colossal 50% earnings drop in the current year, the dividend is still expected to keep on rolling higher, to 13.2p. Although this clearly marks a huge slowdown from fiscal 2014, the projection still creates a monumental 7.2% yield.

By comparison the wider food and drug retailers sector, as well as the FTSE 100, boast a forward average of just 3.2%.

Looking further out, Morrisons is expected to return to solid earnings growth for the 12 months concluding January 2016, with a 17% improvement currently chalked in. Still, the effect of colossal earnings weakness in the meantime is anticipated to weigh on the annual payout, with a sizeable cut taking the dividend to 11.8p per share. Still, 2016’s predicted dividend still carries a hefty yield of 6.4%.

A critical checkbox not yet utilised by the galloping discount sub-sector, however, is the white-hot online grocery space. In spite of Morrisons only launching its internet operations back in January, the company reported in May’s trading update that Morrisons.com is “performing ahead of our expectations”.

The company is looking to turbocharge its operations here, and plans to reach half of the country’s households by the end of the year, a remarkable statistic given its fledgling status. Morrisons still has a huge fight on its hands with the likes of Aldi and Lidl, but with the firm also upping the stakes in the fast-growing convenience store arena to tackle enduring sales weakness, Morrisons could prove a canny investment for those looking for a stock market bargain.

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> Royston does not own shares in Wm. Morrison Supermarkets.