With the U.K. reporting season upon us, there are hundreds of companies to choose from that will be presenting results over the next 2-3 weeks. We will pick out a large cap this week and then a smaller cap stock the following week. The company that we are going for this week is Pearson, which has a great recent track record of increasing its dividend. In fact it is the highest placed FTSE 100 stock in the media sector in the DividendMax optimizer. On the 3 dividend optimizer it yields over 6% reflecting the proximity to the next ex-dividend date and the fact that the sequence is final, interim, final. This year should see it double its dividend over the past 10 years with its 10th consecutive increase. It is one of the few companies to have been an ever-present in the FTSE 100 index since its inception in 1984. Unsurprising, given that it owned the company that set and mantained the index i.e. FTSE International. (recently disposed of)
Pearson once specialised in the ownership of a variety of iconic brands and to some extent still does, but is more focused; On Education, which contributes around 80% of operating profits. The rest comes from Publishing and the FT Group. Most of the revenues come from the U.S.
It reports its final year figures on Monday 25th February. Earnings are forecast to be flat to slightly down this year, coming in at around 84p / share, recovering over the next two years, so what has been a poor year by Pearson’s standards will be behind it. The current recovery in the U.S. economy will help Pearson.
The merger of Penguin with Random house will allow the two companies to strengthen their positions in the content market.
The dividend is forecast by analysts to continue growing and the cover is there to ensure that it does. Pearson is a play on U.S. economic recovery and whilst not cheap has the quality of management and businesses and importantly, the track record, for investors to believe it can succeed.
The price has ranged from around £11 to £13 over the past year and currently sits at just under £12, with a prospective P/E for 2013 of 13.4 followed by 12.6.
