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Investors Chronicle dividend of the week - 05/08/2013

Investment Tools Ltd.
Investors Chronicle dividend of the week - 05/08/2013

Investors Chronicle – Dividend of the week – 5/08/2013

This week we are going to look at back at the past two weeks and focus on all of the companies that have increased their dividends in excess of 15% and as with our previous offerings attempt to provide our reader with a longish list, a shortlist and ultimately our winner. This past couple of weeks has shown a lot of the heavyweight companies produce acceptable, but not spectacular dividend increases. Certainly not enough to justify the lofty share prices of some of these companies. Diageo, for instance sits on a hefty premium to the market (18.5x) and produced only a 9% increase in the interim dividend just last week.

So who are these dividend busting companies and by what percentage (in brackets) did they increase their dividend? The list is; Dialight (22.5%), ARM holdings (26%), CSR (18%), British Sky Broadcasting (18%), Hiscox (16.7%), Intertek (15.4%), ITV (38%), Pace (27%), International Personal Finance (17.5%), Telecity (40%), Essentra (23%), Moneysupermarket.com (20%), Taylor Wimpey (15%), Rightmove (22%), St James’s Place (50%), RPS Group (15%), Laird (21%), William Hill (16%) and finally Inchcape (43%).

We will eliminate RPS Group which was a previous dividend of the week; also Hiscox as it is very similar to our last dividend of the week, Catlin, which leaves us 17 stocks.

So, this week we are not going to use the DividendMax tools so much initially. We take the annualised yield from the Optimiser. Here is the fundamentals for the long list: 

Company

Forward P/E Ratio

Dividend Cover

Annualised yield

Dialight

23.2

3.3

1.84%

ARM Holdings

42.0

3.8

0.83%

CSR

17.8

3.7

2.19%

British Sky Broadcasting

13.5

2.0

5.00%

Intertek

20.6

3.2

1.8%

ITV

16.3

3.0

2.06%

Pace

11.4

7.9

1.55%

International Personal Finance

19.2

3.8

1.89%

Telecity

24.0

3.9

1.67%

Essentra

22.3

2.5

2.18%

Moneysupermarket.com

16.8

1.6

4.89%

Taylor Wimpey

18.1

5.8

0.87%

St. James’s Place

22.5

2.9

3.67%

Rightmove

22.5

2.0

1.36%

Laird

10.7

1.6

6.53%

William Hill

15.5

2.5

2.84%

Inchcape

15.5

2.6

3.87%

Unlike our most recent dividends of the week, we cannot say that these stocks do not look expensive, but that goes with the territory if you are increasing your dividends by large percentages. However, with the high price earnings ratios also come low yields. In order to bring the list down and to obviously have an eye on income, we will eliminate all of the stocks with an annualised yield below 3%.

This eliminates Dialight, ARM holdings, CSR, Intertek, ITV, Essentra, Intertek, Taylor Wimpey, Pace, International Personal Finance, Telecity, William Hill.

Which leaves us with British Sky Broadcasting, St James’s place, Moneysupermarket.com, Laird and Inchcape.

Company

Forward P/E Ratio

Dividend Cover

Annualised yield

Moneysupermarket.com

16.8

1.6

4.89%

St. James’s Place

22.5

2.9

3.67%

Laird

10.7

1.6

6.53%

Inchcape

15.5

2.6

3.87%

British Sky Broadcasting

13.9

2.0

5.00%

What are the brokers saying about the five survivors? The table below represents the number of brokers in each of the recommendations categories of buy / hold / sell:

Company / Broker Rec

 Buy

Hold

Sell

British Sky broadcasting

13

8

6

St. James’s Place

11

5

0

Moneysupermarket.com

6

3

1

Laird

4

3

2

Inchcape

6

4

0

 

At this stage we will eliminate Moneysupermarket.com and Laird on the grounds of relatively low dividend cover. At the interim stage, announced last week Laird’s earnings covered the dividend 1.3 times. Having said that, they are predicting a second half bias to their overall outcome in this financial year. If you are happy with the dividend cover, then Laird have a very good yield. Moneysupermarket.com is also eliminated on the grounds of relatively low dividend cover. The market reacted badly to its interim results last week and there is concern over the full year outcome. Also, after the interim period end, they paid a £70 million special dividend which would have taken them from net cash into a net debt position.

Let’s have a look at the dividends paid by each of our shortlist over the past 6/7 years:

British Sky Broadcasting

Year

Dividend in Pence

% Growth

2006

12.3

 

2007

15.5

26.0%

2008

16.75

8.1%

2009

17.6

5.1%

2010

19.41

10.3%

2011

23.28

19.9%

2012

25.4

9.1%

2013

30.0

18.1%

Inchcape

Year

Dividend in Pence

% Growth

2006

15.0p

 

2007

5.46p

(63.6)%

2008

0.0p

Dividend cut

2009

0.0p

No dividend

2010

6.6p

Dividend re-instated

2011

11.0p

66.7%

2012

14.5p

31.8%

 

St James’s Place

Year

Dividend in Pence

% Growth

2006

3.9p

 

2007

4.39p

12.6%

2008

4.39p

0%

2009

2.66p

(39.4)%

2010

6.0p

125.6%

2011

8.0p

33.3%

2012

10.64p

33.3%

St. James’s place has had a very strong run and as a result of this do look expensive. They increased the dividend by 50% at last week’s interim results stating “As noted above the growth in the cash result, helped by the investment return of our funds, has been particularly strong in the first six months of the year and the Board has decided to increase the interim dividend by 50% to 6.38p and shareholders can expect similar growth in the full year dividend.”  Their recent share price history shows a high of 640p and they currently trade at 634p, with a 52 week low of 336p.

Inchcape has recovered from a terrible time during the financial crisis to last week announcing a record first half profit before tax, a 42.5% increase in the interim dividend and a £100 million share buyback programme. No surprise then that the shares rose 10% on Friday to put them on a fairly challenging price earnings ratio of 15.5x. Their recent share price history shows a high of 654p and they currently trade at 654p, with a 52 week low of 353p.

British Sky Broadcasting has a very solid track record and has proved to be extremely resilient through the financial crisis. The latest dividend increase is the ninth year of consecutive growth. Its last four years show earnings growth of 24%, 30%, 22% and 18%. They are also seeking approval for a further £500 million of share repurchases. Their recent share price history shows a high of 899p and they currently trade at 837p, with a 52 week low of 709p.

As with all Dividends of the week, the final choice is always difficult, but for me British Sky Broadcasting looks like the best choice. Their track record through the tough times shows you what a solid business this is and the past four years growth makes you wonder how such growth is rewarded with a P/E of less than 14x. You just get the feeling that you have missed the boat with the other two with both of their share prices having almost doubled in the past twelve months. That said, with Dividend of the week, we are looking to provide an analysis and some ideas for our readers and St. James’s place and Inchcape look like something for the watch list.

We are estimating the next three dividends to be 19.0p (Actual), 12.4p and 22.0p. They are at 837.0p at Fridays close. At 837.0p, this will generate a return of 5.00% annualised over an approximate 15 month period.

British Sky Broadcasting yield calculation:

19.0 + 12.4 + 22.0 = 53.4p between now and 12/11/2014 (approximate ex-dividend date of the third dividend)

Ergo 53.4p / 837.0 = 6.38% 6.38% annualised = (6.38x365) / 465* = 5.00%

*Number of days until theoretical ex-dividend of the third dividend.

Companies mentioned

This article was originally acceessible only to DividendMax members and is now publicly available.

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