Marks and Spencer

Marks and Spencer (LSE: MKS) is a major British multinational retailer that sells clothing and beauty, home, and food products. This week, three director dealings were carried out. A large number of shares were received in lieu of a cash dividend, but a portion was sold to cover tax and national insurance obligations.

• Name: Stuart Machin
• Position of director: Chief Executive Officer
• Nature of transaction: Free shares
• Date of transaction: 22 June 2022
• Amount received: 203,120 @ nil
• Total value: N/A

• Name: Stuart Machin
• Position of director: Chief Executive Officer
• Nature of transaction: Sales of shares to cover tax and national insurance liabilities
• Date of transaction: 22 June 2022
• Amount sold: 99,121 @ £1.37
• Total value: £135,805.68

• Name: Sacha Berendji
• Position of director: Property, Store Development, and IT Director
• Nature of transaction: Free shares
• Date of transaction: 22 June 2022
• Amount received: 138,115 @ nil
• Total value: N/A

• Name: Sacha Berendji
• Position of director: Property, Store Development, and IT Director
• Nature of transaction: Sales of shares to cover tax and national insurance liabilities
• Date of transaction: 22 June 2022
• Amount sold: 67,399 @ £1.37
• Total value: £92,343.37

• Name: Paul Friston
• Position of director: International Director
• Nature of transaction: Free shares
• Date of transaction: 22 June 2022
• Amount received: 131,691 @ nil
• Total value: N/A

• Name: Paul Friston
• Position of director: International Director
• Nature of transaction: Sales of shares to cover tax and national insurance liabilities
• Date of transaction: 22 June 2022
• Amount sold: 62,264 @ £1.37
• Total value: £88,048.11

Cranswick

Cranswick (LSE: CWK) is a leading UK food producer and supplier of fresh and premium food products. It’s most famous for its meat products. Four directors opted to exercise their share options this week. However, they then proceeded to sell portions.

• Name: Mark Bottomley
• Position of director: Chief Financial Officer
• Nature of transaction: Free shares
• Date of transaction: 27 June 2022
• Amount received: 31,800 @ nil
• Total value: N/A

• Name: Mark Bottomley
• Position of director: Chief Financial Officer
• Nature of transaction: Sale of shares
• Date of transaction: 27 June 2022
• Amount sold: 16,379 @ £30.82
• Total value: £504,768.02

• Name: Adam Couch
• Position of director: Chief Executive Officer
• Nature of transaction: Free shares
• Date of transaction: 27 June 2022
• Amount received: 48,100 @ nil
• Total value: N/A

• Name: Adam Couch
• Position of director: Chief Executive Officer
• Nature of transaction: Sale of shares
• Date of transaction: 27 June 2022
• Amount sold: 24,775 @ £30.82
• Total value: £763,515.95

• Name: Jim Brisby
• Position of director: Chief Commercial Officer
• Nature of transaction: Free shares
• Date of transaction: 27 June 2022
• Amount received: 31,800 @ nil
• Total value: N/A

• Name: Jim Brisby
• Position of director: Chief Commercial Officer
• Nature of transaction: Sale of shares
• Date of transaction: 27 June 2022
• Amount sold: 16,379 @ £30.82
• Total value: £504,768.02

• Name: Chris Aldersley
• Position of director: Chief Operating Officer
• Nature of transaction: Free shares
• Date of transaction: 27 June 2022
• Amount received: 26,300 @ nil
• Total value: N/A

• Name: Chris Aldersley
• Position of director: Chief Operating Officer
• Nature of transaction: Sale of shares
• Date of transaction: 27 June 2022
• Amount sold: 13,546 @ £30.82
• Total value: £417,460.628

HomeServe

HomeServe (LSE: HSV) offers low-cost home warranty and home repair options. It markets itself as the solution to expensive and inconvenient emergency home repairs. Three massive director dealings happened earlier in the week, as shares were awarded to these directors based on performance conditions.

• Name: David Bower
• Position of director: Director
• Nature of transaction: Free shares
• Date of transaction: 27 June 2022
• Amount received: 21,119 @ nil
• Total value: N/A

• Name: David Bower
• Position of director: Director
• Nature of transaction: Free shares
• Date of transaction: 27 June 2022
• Amount received: 10,190 @ £11.69
• Total value: £119,121.10

• Name: Tom Rusin
• Position of director: Director
• Nature of transaction: Free shares
• Date of transaction: 27 June 2022
• Amount received: 30,619 @ nil
• Total value: N/A

• Name: Tom Rusin
• Position of director: Director
• Nature of transaction: Free shares
• Date of transaction: 27 June 2022
• Amount received: 11,815 @ £11.69
• Total value: £138,117.35

• Name: Richard Harpin
• Position of director: Director
• Nature of transaction: Free shares
• Date of transaction: 27 June 2022
• Amount received: 34,911 @ nil
• Total value: N/A

Types of shares in a SIP

To provide context, there are a few types of shares within a company’s share incentive plan (SIP). A SIP is an employee plan for companies within the UK to flexibly award equity to employees. Publicly listed companies normally exercise this option because it’s tax-efficient for both the employer and its employees.

In this instance, all the director dealings above occurred with free shares. These shares were acquired by directors under their companies’ share plans. These were either a restricted share plan (Marks and Spencer), or incentive plans (Cranswick and HomeServe).

Share award schemes give employees actual shares rather than share options. The value of shares given to directors here is treated as employment income. This means that it may be subject to tax and national insurance contributions. That is unless the directors opt for an HMRC-approved share scheme, which has its own rules and requirements. Incentive plans give directors shares when they hit certain performance targets. For HomeServe directors, the awards were subject to the company’s earnings per share.

The post Director dealings: Marks and Spencer, Cranswick, HomeServe appeared first on The Motley Fool UK.

More reading

• £10,000 invested in Marks & Spencer shares 1 year ago is now worth…
• 5 years ago, £5,000 bought 3,185 Marks & Spencer shares. But how many would it buy now?
• What are the best UK shares to buy now to try and make a million?
• Consider these 2 dirt-cheap stocks to buy if the Straits of Hormuz permanently reopen
• Marks and Spencer’s share price is down 16% to below £4! Is now the time for me to buy the dip with an eye to £8+?

John Choong has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco. 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.

Marks and Spencer (LSE: MKS) shares are down 40% this year. Despite that, the retailer reported excellent numbers in its most recent full-year results, with plenty of promise for the future. As such, I think a closer look at the company is warranted.

Hungry for more

After years of declining profit margins, Marks and Spencer launched its latest turnaround programme in 2020 under the Never the Same Again name. This bid to improve the brand’s image and business operations looks like it might be working. The FTSE 250 firm has posted an excellent recovery since, with improvements in customer perception of the M&S brand. As a result, M&S Food sales grew 10.8% year-on-year, while expanding its market share from 3.4% to 3.6% over a three-year period. This was also helped in part by its key partnerships with Coca-Cola‘s Costa Coffee and Ocado.

Additionally, the firm saw its operating margins improve in the second half of its financial year. Even so, I was impressed that the board is aiming to further improve its food supply chain through boosting efficiency and cutting costs. Thus, I expect its food prices to become more affordable, allowing it to expand its market share.

Getting the right fit

Marks and Spencer isn’t just its food business, however. One of the main reasons behind its poor past performance can be attributed to the company’s inability to keep up with the times, as far as its struggling clothing offer was concerned.

That being said, the Never the Same Again programme gave a breath of fresh air to the retailer’s clothing segment. Consequently, the division saw its sales figure jump 51.6% on the year and 3.8% against three years ago.

There’s also the positive effect of M&S’s investments in digital. With heavy competition from e-commerce giants and more nimble omnichannel retailers, Marks and Spencer was always going to struggle. However, enhanced investment has made its e-sales more market competitive. In fact, market penetration has almost doubled to 34%. This has been helped by around its 40 clothing brand partnerships. Moreover, the acquisition of Jaeger and The Sports Edit have added even more depth and variety to its offer.

A summer with Marks and Spencer

Since 2018, Marks and Spencer has reduced its debt levels by 12%. What impressed me most though, is its cash position, which has grown by a whopping 455%! Furthermore, profit margins are back to a healthier level of 2.8%, with free cash flow at £1.1bn.

Nevertheless, my concerns of a potential recession impacting sales are shared by the board. Having said that, CEO Stuart Machin stated that its market positioning and business strategy will help mitigate any slowdown. He believes that the company has a strong brand image to help it maintain its market share. He also expects strong tailwinds from travel, leisure, and weddings to keep its sales numbers strong.

Marks and Spencer shares have a price-to-earnings (P/E) ratio of 9. While it’s not seen as a traditional growth stock, it does have an average price target of £1.93. This gives it the potential to rebound by 43% over a one-year period. Therefore, I’ll be capitalising on its low share price and will buy some stock for my portfolio in July.

The post Should I buy Marks and Spencer shares for its growth in July? appeared first on The Motley Fool UK.

More reading

• £10,000 invested in Marks & Spencer shares 1 year ago is now worth…
• 5 years ago, £5,000 bought 3,185 Marks & Spencer shares. But how many would it buy now?
• What are the best UK shares to buy now to try and make a million?
• Consider these 2 dirt-cheap stocks to buy if the Straits of Hormuz permanently reopen
• Marks and Spencer’s share price is down 16% to below £4! Is now the time for me to buy the dip with an eye to £8+?

John Choong has no position in any of the shares mentioned. The Motley Fool UK has recommended ASOS, Ocado Group, and boohoo group. 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.

Plenty of bargain seekers have piled into Royal Mail (LSE: RMG) and Marks & Spencer Group (LSE: MKS) in recent years, but most will have been disappointed by the results. These two household name UK shares are proving hard to turn around.

Marks & Spencer has lost a retail empire, and is still trying to find a role. The group seems to have been restructuring for most of my writing life. Its food division has enjoyed success, but its clothing operations have spent the last two decades missing the zeitgeist, with unerring accuracy.

I’d avoid this troubled UK share

Management has responded to its most recent reversals by tinkering with structures to reduce role duplication, improve accountability and allow retail teams to focus more on the customer, etc etc. All of which is fine (unless you’re one of latest 950 set to lose their jobs), but falls well short of the dramatic turnaround required.

Talk of making Marks & Spencer stronger, leaner and resilient doesn’t excite me. It sounds like planning for failure. I want it to give shoppers a reason to step back into its stores, in the hope of enjoying the experience, and emerging with something stylish to wear.

The shift to online shopping and the pandemic haven’t helped. But the truth is the rot set in before those two menaces emerged. The latest turnaround plan ‘Never The Same Again’ is one of many. They come along as regularly as new chief executives. M&S may be a dirt-cheap UK share, trading at around 6.5 times earnings, but I think its glory days are gone. All empires fall in the end.

Royal Mail is another UK share with an end-of-empire feel, as it looks to survive the death of the letter. Like Marks, it also has more fertile ground to explore, in the rise of e-commerce. The lockdown has worked in its favour here. Parcel volumes rose 38% in the three months to 28 June, as businesses and consumers shifted online.

This FTSE stock is dirt-cheap for a reason

Against that, you have to set the long-term decline of the group’s UK parcels, international and letters unit. Sadly, the lockdown failed to revive the lost art of letter writing.

By contrast to Marks, the Royal Mail share price is actually climbing, up 10% in three months. However, that may largely be down to investors speculating on the intentions of Czech billionaire Daniel Kretinsky, who is upping his stake in the business.

Royal Mail may be trading at just 9.5 times earnings but, like Marks, it seems to lack edge in a competitive world. I’d rather target UK shares with a bright future, rather than a glorious past.

The post Are these 2 dirt-cheap UK shares amazing bargain buys or deadly value traps? appeared first on The Motley Fool UK.

More reading

• £10,000 invested in Marks & Spencer shares 1 year ago is now worth…
• 5 years ago, £5,000 bought 3,185 Marks & Spencer shares. But how many would it buy now?
• What are the best UK shares to buy now to try and make a million?
• Consider these 2 dirt-cheap stocks to buy if the Straits of Hormuz permanently reopen
• Marks and Spencer’s share price is down 16% to below £4! Is now the time for me to buy the dip with an eye to £8+?

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Fashion leader

The Burberry share price is up 27% over the past 12 months alone, thrashing the index, up 10% over the same period. The £8.89bn London-fashion house has global reach, led by a fast-growing operation in China, while its wealthy/aspirational customers have largely avoided the recent squeeze on incomes.

The stock is down 3.5% today, as its Q3 trading update showed retail revenue rising just 1% to £719m. Yet the report was largely positive, as CEO Marco Gobbetti reported “another good quarter as new collections delivered strong growth and we continued to shift consumer perceptions of our brand.” Perhaps markets were worried by his comment about being “mindful of the uncertain macro-economic environment,” but that’s a usual caveat to its more recent trading statements and, these days, who isn’t?

Burberry has driven its brand through careful use of social media and recently announced a partnership with tech giant Tencent in mainland China, with the first “social retail store” to open in Shenzhen next year.

Mainland China growth is still in the mid-teens, although political unrest halved sales in Hong Kong. Elsewhere, growth was largely in the low single digits, including the US, although tourists to continental Europe were spending more freely.

More growth to come

Burberry hiked its revenue projections for full-year 2020 slightly, from “broadly stable” to “a low single digit percentage.” I suspect markets expected more today, given that it now trades at 24.2 times earnings. There’s nothing new there as it’s been pricey for some time.

The forecast yield of 2% below the FTSE 100 average of 4.34% is covered twice by earnings, which gives scope for growth. City analysts are pencilling in earnings growth of 10% in 2021, and an even more impressive 13% the year after. Burberry still looks a buy. Alternatively, you could wait for a market dip and a cheaper valuation.

Marks & Spencer still struggles

I wish I could be so positive about another company that was once a big name in fashion, Marks & Spencer Group (LSE: MKS). Its decline has been dramatic, as its flourishing food stores were held back by a clothing operation that doesn’t seem to understand its customers, or how to cater for them. It even struggles to sell clothes online.

Last year, it crashed out of the FTSE 100, and the Marks & Spencer share price continues to slide, losing a third of its value in the last year alone.

As well as its own issues, management has also had to cope with the wider decline of the high street, a trend that looks unlikely to reverse. The £3.6bn FTSE 250 group is cheap, trading at just 10.4 times forward earnings, and comes with a generous forecast yield of 5.7%, covered 1.7 times by earnings.

Management is looking to boost food sales by selling online through Ocado, but still has to work out what to do with its clothing and home operations. I’d rather buy Burberry.

The post £1k to invest? I’d buy this FTSE 100 growth stock, but shun this FTSE 250 faller appeared first on The Motley Fool UK.

More reading

• £10,000 invested in Marks & Spencer shares 1 year ago is now worth…
• 5 years ago, £5,000 bought 3,185 Marks & Spencer shares. But how many would it buy now?
• What are the best UK shares to buy now to try and make a million?
• Consider these 2 dirt-cheap stocks to buy if the Straits of Hormuz permanently reopen
• Marks and Spencer’s share price is down 16% to below £4! Is now the time for me to buy the dip with an eye to £8+?

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Burberry. 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.

On your Marks

When I checked the M&S share price this morning, I thought the comeback must finally be underway, with a 3% jump following publication of its half-year results. Closer inspection brought only disappointment. Profits before tax and adjusting items fell by a whopping 17.1% to £176.5m, due mostly to weak first-half sales in its Clothing & Home division.

The results were nonetheless bullishly headlined “Far-reaching change – delivered at pace,” which suggests management at least is confident of a turnaround. As are investors, judging by the hop in the share price.

The food business is also “on track, with positive like-for-like sales and strong volume growth,” while Clothing & Home sales picked up in October (a trend also seen Next, as colder October temperatures brought out the shoppers).

High dividend, low cost

Management completed its 50% acquisition of Ocado Retail, closed 17 full-line stores, and delivered cost savings totalling around £75m. It also strengthened the balance sheet, with £250m bond issue, rights issue, and dividend cut. The forecast yield still looks good at 5.9%, covered 1.7 times by earnings. Unsurprisingly, given that the share price has fallen by 35% in the last year alone, the valuation is low at 9.6 times forward earnings.

The future still looks tough: “While some improvement in trading is planned in the second half, market conditions remain challenging,” today’s report said.

But I despair of Marks & Spencer clothing, which seems immune to overhaul. Online sales are disappointing, despite its ‘digital first’ strategy. Throw in Brexit, the global slowdown, and a forecast 23% drop in earnings per share in the year to 31 March 2020, and it isn’t hard to see why broker Peel Hunt recently downgraded the group to ‘sell’. I certainly wouldn’t buy it today, although others are. They must have expected much worse.

On the up

Let’s try and find something more upbeat for you. FTSE 100-listed defence company BAE Systems (LSE: BA) jumped 5% in September, as investors took heart following an earnings upgrade from City analysts. The BAE share price is now up 20% in the last six months as, unlike M&S, it manages to shrug off its recent share price slump.

Interim earnings, profits and revenues have all been rising, which should help chief executive Charles Woodburn towards his target of delivering consistent and strong operational performance for customers and shareholders.

Despite all these positives, the stock still trades at just 12.8 times forward earnings, which are expected to rise steadily, by around 6% or 7% over the next few years. The forecast 4% dividend yield is solidly covered twice and, although you can find higher payouts on the FTSE 100, they don’t always look as secure as the BAT Systems dividend currently does.

BAE Systems isn’t as cheap as it was earlier this year, but it still looks good value to me. I would definitely buy it ahead of Marks & Spencer.

The post £1,000 to invest? Here’s one turnaround stock I’d buy today, and one I’m still avoiding appeared first on The Motley Fool UK.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

It’s been a mainstay of the UK’s leading blue-chip stock index since the Footsie’s founding in 1984. But now its dwindling market-cap means the business will be relegated to the FTSE 250. 

This might seem like bad news at first sight, but I don’t think investors should give up on the M&S share price just yet. Indeed, there’s a good chance this relegation could be just what Marks needs. 

A growth index 

FTSE 250 businesses have a better record of growth than their FTSE 100 counterparts. There are a handful of reasons why this is the case. They’re smaller, more nimble and retain more income to reinvest, rather than paying out hefty dividends. 

I’m not saying that M&S will become a growth stock overnight. But by moving to the lower index, there could be less pressure on the firm to perform. That might give management more room to develop the business the way it wants, rather than the way the City wants.

The consensus among consumers seems to be that the retailer needs to go back to its roots if it wants to return to growth. Shoppers want better quality clothing, a better range of products and lower prices. This means the firm needs to slim down, re-focus and give customers what they want, not what management thinks they want. 

There seems to be some progress on this front. Marks is in the process of closing more than 100 stores and is cutting the numbers of managers to improve efficiency. Meanwhile, the food business is starting to take market share after prices were reduced, and confusing promotions eliminated.

Hard decisions 

I think the business is going to have to make a lot of hard choices if it wants to return to growth. But, to reiterate, being in the FTSE 250 might give it the freedom to do just that without the harsh lights of the City always focused on the business. 

Currently, analysts are expecting a decline in earnings of 37% this fiscal year. Even after factoring in this decline, the stock is trading at a forward P/E of 10. This multiple doesn’t seem too demanding if the business does manage to reignite growth over the next year or two.

On top of this, the stock supports a dividend yield of 5.6%. With the payout covered 1.8 times by earnings per share, even after this year’s decline in profits, I think it looks safe for the time being.

So, it looks as if investors will be paid to wait for the turnaround. Debt has fallen in recent years, which would also give the company flexibility to maintain the dividend and pursue its turnaround strategy without having to worry about a cash crunch.

All in all, while M&S does seem to have made plenty of mistakes in the past, its relegation to the FTSE 250 could mark a turning point for business, in my opinion.

The post The M&S share price is leaving the FTSE 100. Could now be the time to buy? appeared first on The Motley Fool UK.

More reading

• £10,000 invested in Marks & Spencer shares 1 year ago is now worth…
• 5 years ago, £5,000 bought 3,185 Marks & Spencer shares. But how many would it buy now?
• What are the best UK shares to buy now to try and make a million?
• Consider these 2 dirt-cheap stocks to buy if the Straits of Hormuz permanently reopen
• Marks and Spencer’s share price is down 16% to below £4! Is now the time for me to buy the dip with an eye to £8+?

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Unfortunately, it doesn’t seem as if this performance is going to come to an end any time soon. Today I’m going to explain why I believe the M&S share price could fall a further 30% from current levels. 

Pressure building 

Last week, the high street giant lost its fourth clothing chief in a decade as it struggles to turn round the business and attract younger customers. The revolving door to the clothing chief’s office is an excellent analogy of the group’s troubles over the past 10 years.

M&S has trialled a stream of new turnaround plans since the financial crisis, but so far, nothing has worked. In May, M&S reported a 3.6% decline in clothing revenues compared to a 0.6% decline in its food business. It’s difficult to pinpoint where M&S has gone wrong, but customers of the 135-year-old retailer often complain that clothing quality and choice has deteriorated markedly since its heyday. 

To try and offset the decline at its clothing business management is trying to grow out the group’s food business. To this end, M&S announced a joint venture with online retailer Ocado at the end of February, which will see the retailer team up with its younger peer in a home delivery initiative. M&S paid £750m for 50% of the Ocado joint-venture, which will begin trading in September 2020. 

Management seems to think that this will cure the company’s ills, but I’m not convinced. Food retailing is a brutal business, margins are razor-thin, and competition is only increasing. Even the most significant players in the market, Tesco, Sainsbury’s and Asda are struggling to expand income in the current environment, and M&S’s food sales are already contracting. 

In other words, I think this mega-deal could end up being an expensive mistake for the business. 

Further declines 

Of course, only time will tell if M&S’s tie-up with Ocado will help turn the business around. It could be a great success for the partnership. However, I am not willing to get involved with the M&S share price right now because I think it is too expensive. 

City analysts believe earnings per share will fall by nearly 40% this year, that’s a considerable decline. There’s no guarantee earnings will recover soon either. In the best case, analysts believe earnings will increase just under 1.5% in fiscal 2021 which, considering the fact that profits have declined by more than a third over the past five years, seems optimistic.

With earnings declining and no sign of a turnaround on the horizon, I think there’s a high chance the stock will fall further from current levels. Another 30% decline in earnings over the next five years could see the shares down another 30% (and possibly further if the Ocado venture does not work out) from current levels, excluding dividends. A P/E of 10.4 does not compensate for this risk in my view.

That’s why I’m staying away from the company.

The post Warning! I think the Marks and Spencer share price could fall another 30% appeared first on The Motley Fool UK.

More reading

• £10,000 invested in Marks & Spencer shares 1 year ago is now worth…
• 5 years ago, £5,000 bought 3,185 Marks & Spencer shares. But how many would it buy now?
• What are the best UK shares to buy now to try and make a million?
• Consider these 2 dirt-cheap stocks to buy if the Straits of Hormuz permanently reopen
• Marks and Spencer’s share price is down 16% to below £4! Is now the time for me to buy the dip with an eye to £8+?

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Tesco. 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.

However, there are also quite a few companies in the index that I wouldn’t touch with a bargepole. Today, I’m going to highlight three of these FTSE 100 dividend stocks that I would sell immediately.

Value destroyer

In my opinion, utility group Centrica (LSE: CNA) is one of the worst run businesses in the FTSE 100. Over the past decade, the company has lurched from mistake to mistake, destroying billions of pounds of shareholder value along the way.

Shareholder equity, which gives us a rough guide as to how much value a company has created for shareholders, has decreased from £5.2bn to £3.2bn over the past five years. Over the same time frame, shares in Centrica have underperformed the FTSE 100 by around 19% per annum. Over the past decade, the stock has underperformed by 10% per annum.

And it doesn’t look as if this performance is going to come to an end any time soon. City analysts are expecting the company’s earnings per share to fall 41% for 2019 to 8.8p putting the stock on a forward P/E of 10.7, which looks slightly expensive for an enterprise with falling earnings. At the same time, I can’t see how Centrica can continue to maintain its dividend, which is only just covered by earnings. With this being the case, I would avoid the stock and its 9.1% dividend yield at all costs.

Stormy times ahead

I’m also worried about the outlook for SSE (LSE: SSE). While this company might immediately look attractive as an income investment with a dividend yield of 9.3% at the time of writing, the firm is slated to reduce its distribution by 18% next year, which will leave it yielding 7.7% at current prices.

Unfortunately, I don’t think this is going to be the last time SSE will have to reduce the distribution. For the past five years, the company has been paying out more than it can afford to shareholders and, as a result, net debt has nearly doubled.

SSE cannot continue on this trajectory forever. With regulators and policymakers cracking down on what they see as large profit margins in the utility industry, SSE may be forced to rethink its dividend policy to protect the overall business — that’s why I’m staying away, there are just too many risks here.

Struggling turnaround

The last former income champion that I believe investors should sell without hesitation is Marks and Spencer (LSE: MKS). At one point last year, this company supported a dividend yield of nearly 7%, but with earnings falling, management has decided to reduce the distribution to free up more capital to reinvest in the business.

Last week, along with announcing a £601m rights issue to fund a joint venture with online grocer Ocado, M&S also revealed that it is cutting its full-year dividend by 25.7% to 13.9p per share.

I think it’s strange that M&S is keeping its dividend at all. Asking shareholders for cash to fund a joint venture, and then paying a portion of this cash back to them via a dividend, seems to suggest management isn’t really committed to the turnaround. A 9.9% year-on-year drop in pre-tax profit for the recently concluded financial year is another reason why I think shareholders should dump the struggling retailer.

The post 3 FTSE 100 dividend stocks I’d sell immediately appeared first on The Motley Fool UK.

More reading

• £10,000 invested in Marks & Spencer shares 1 year ago is now worth…
• 5 years ago, £5,000 bought 3,185 Marks & Spencer shares. But how many would it buy now?
• What are the best UK shares to buy now to try and make a million?
• Consider these 2 dirt-cheap stocks to buy if the Straits of Hormuz permanently reopen
• Marks and Spencer’s share price is down 16% to below £4! Is now the time for me to buy the dip with an eye to £8+?

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Moving on

Advertising giant WPP (LSE: WPP) is down 25% over the last six months, and 50% over two years due to falling sales, client losses and the industry shift to online advertising. The company also had the small matter of losing chief executive Sir Martin Sorrell, who ran the show for 33 years and was the longest-serving and highest-paid boss of a FTSE 100 company.

New boss Mark Read is busy revising the group’s sprawling structure, offloading businesses, merging offices and closing others, while slashing net debt by £466m to £4bn at the end of 2018, with further shrinkage planned.

On the mend

WPP should gradually return to rude health but it won’t be a smooth process, as revenues fell 2.6% last year to £15.6bn, although analysts actually expected worse on that score. Statutory profit before tax fell a painful 30.6% to £1.5bn, while earnings per share (EPS) dropped 40.8% to 84.3p.

A further 29% fall in EPS is anticipated this year, but after that earnings should start to grow slowly. WPP clearly has its troubles, but management is tackling them full on and the stock trades at just 8.6 times forecast earnings, so many of its issues should be in the price.

Off the Mark

WPP’s forecast yield of 6.9% is backed by cover of 1.7, so looks solid. One worry is that advertising agencies are on the frontline of any global economic slowdown and could take a hit if the doomsayers are right. US revenues did fall 3% last year, although they held up in the rest of the world. Not without risk, then, but the shares are still a tempting buy for me.

The UK retail sector is a tough place right now as consumers feel the squeeze, Brexit casts uncertainty and internet shopping rolls on. The truth is that Marks & Spencer Group (LSE: MKS) was struggling even before the latest wave of troubles. Its stock is down 42% over five years, although it has been relatively stable for the last 12 months.

Food fight

Marks has been at the sharp end of changing fashion trends for years and, despite repeated attempts, has failed to recapture its lost spark. The group’s food division is far more forward looking — in fact, walking from one part of an M&S store to another can feel like moving from the drab old 1950s to some futuristic foodie paradise!

Everyone is waiting to see how the £750m joint venture with Ocado will pan out, bringing M&S food to the nation’s doors. This will involve some major investment, but at least it gives investors some hope for growth. Other attractions include a low valuation of 11 times forward earnings and, best of all, a forecast yield of 6.2% with cover of 1.4.

Marks’ earnings growth looks set to be sluggish over the next couple of years. This could be the start of the long-awaited turnaround but if I bought just one of these two stocks today, it would be WPP.

The post I reckon these 2 overlooked FTSE 100 7% yielders may be too cheap to ignore appeared first on The Motley Fool UK.

More reading

• £10,000 invested in Marks & Spencer shares 1 year ago is now worth…
• 5 years ago, £5,000 bought 3,185 Marks & Spencer shares. But how many would it buy now?
• What are the best UK shares to buy now to try and make a million?
• Consider these 2 dirt-cheap stocks to buy if the Straits of Hormuz permanently reopen
• Marks and Spencer’s share price is down 16% to below £4! Is now the time for me to buy the dip with an eye to £8+?

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

A few weeks after my article, Marks officially announced that it is going into business with Ocado, and investors will be paying for the privilege.

Specifically, at the end of February, the company announced it i spaying £750m to acquire a 50% share in the Ocado UK retail business funded with a £600m rights issue and 40% dividend cut. 

No panacea

Management seems to believe that this deal is the solution to Marks’ problems, but I don’t agree. While introducing an online offering might help improve brand sales, it is notoriously difficult to make money in this business. Indeed, even Ocado, which has established itself as one of the world’s leading authorities on grocery delivery over the past decade, hasn’t been able to achieve profitability.

Getting customers to convert to Marks’ brand could be another challenge. The company has spent hundreds of millions of pounds investing in its food offer over the past few years, but despite this, sales are currently falling. 

It posted a 2.1% fall in like-for-like food sales to £1.7bn for the third quarter ending 29 December. The option for online delivery might draw some consumers back to the brand, but will enough consumers return to justify the cost? I reckon it’s unlikely and that’s why I’m a seller of the stock today. 

Pushing ahead 

As Marks struggles, online-only fast fashion retailer Asos (LSE: ASC) is powering ahead. While I’ve been a seller of the company in the past on valuation grounds, considering the state of the retail industry, I think Asos’s outlook is currently better than most — its outlook certainly seems brighter than that of Marks. 

Today the company reported a 13% increase in reported sales for the three months to the end of February lead by a 14% increase in UK sales to £244m, making it the group’s largest market. Unfortunately, this growth missed expectations, and the shares have been punished as a result. Nevertheless, I think the declines could present an opportunity for growth investors.

Rest of world sales leapt 20% in the same period, and the firm’s recently established US business is primed for explosive growth. Even though US sales only ticked 4% higher in the three months to the end of February, management noted that “demand far exceeded our expectations” at its newly opened Atlanta warehouse, which caused a “significant short-term despatch back log.” These issues are now resolved, and we should start to see improved growth out of the US as a result going forward.  

After taking all of the above into account, it looks as if the company is well on the way to hitting the City’s sales growth target for the full year.

Analysts are forecasting growth of 15.4%, although they also think that, due to higher capital spending and margin pressure profits will slide 48%. Falling profitability isn’t ideal, but a rebound is expected in 2020 where analysts have pencilled in growth of 55%. However, I think better than expected performance and the company’s US division, could blow this target out the water.

The post Don’t delay, I’d sell FTSE 100 retailer’s Marks and Spencer share price today appeared first on The Motley Fool UK.

More reading

• £10,000 invested in Marks & Spencer shares 1 year ago is now worth…
• 5 years ago, £5,000 bought 3,185 Marks & Spencer shares. But how many would it buy now?
• What are the best UK shares to buy now to try and make a million?
• Consider these 2 dirt-cheap stocks to buy if the Straits of Hormuz permanently reopen
• Marks and Spencer’s share price is down 16% to below £4! Is now the time for me to buy the dip with an eye to £8+?

Rupert Hargreaves owns no share mentioned. The Motley Fool UK owns shares of and has recommended ASOS. 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.