Pearson: A FTSE 100 Dividend-Raising Star

LONDON -- In an outcome that's tough on investors, the FTSE 100 (UKX) has failed to deliver a rising dividend payout over the last few years.

Just look at the iShares FTSE 100 ETF  (LSE: ISF  ) , for example. This is an exchange-traded fund that tracks the benchmark index, and we can see the aggregate payment from Britain's top 100 companies has yet to regain its pre-recession peak:

Year 2007 2008 2009 2010 2011
Dividend per share 19.1p 20.2p 17.1p 16.2p 18.1p

But some companies within London's premier index have performed well on dividends, despite these austere times, and this series aims to seek them out. One such name is Pearson  (LSE: PSON  ) (NYSE: PSO  ) .

The big question is, can the company's dividend continue to out-perform its index. Let's take a closer look.

Pearson is an international publishing house. With the shares at 1184p, the market cap is 9714 million pounds. This table summarizes the firm's recent financial record:

Year 2007 2008 2009 2010 2011
Revenue* 4,162 4,811 5,140 5,663 5,862
Net cash from operations* 463 718 819 1,006 872
Adjusted earnings per share 39p 57.7p 65.4p 77.5p 86.5p
Dividend per share 31.6p 33.8p 35.5p 38.7p 42p

*in millions of pounds.

So, the dividend has increased by 33% during the last five years -- equivalent to a 7.4% compound annual growth rate.

Recent news is that Pearson has agreed to combine its much-loved Penguin brand with Bertelsmann's Random House with the intention of creating the world's leading trade publisher. The Penguin sector of the business, which produces quality novels and classics, through to cookbooks and other publications around the world, currently accounts for around 18% of sales. Meanwhile, the firm's other well-known brand, the Financial Times, delivers just 7% of sales.

The real action at Pearson is in its Education Sector, which supplies curriculum materials, multimedia learning tools and testing programs across the educational spectrum and which delivers around 75% of overall sales. Within Education, the company's most important market is the U.S., accounting for around 44% of overall company sales.

A management statement delivered on 29 October revealed that U.S. sales were 4% up year-on-year with a perky looking 13% improvement in sales in its International Education sector, which although smaller, includes fast-growing markets like China, India, South Africa, and Brazil.

Forward-looking statements from the directors are encouraging and that bodes well for the dividend's prospects, in my view.

Pearson's dividend growth score
I analyse four different features of a company to judge whether its dividend can continue to rise:

  1. Dividend cover: Adjusted earnings covered last year's dividend around twice. 4/5
  2. Net cash or debt: At the last count, net gearing stood at about 20%. 4/5
  3. Cash flow: Cash flow has supported profits although it has been a little bumpy. 3/5
  4. Outlook and recent trading: Good recent trading and a cautiously positive outlook. 4/5

Overall, I score Pearson 15 out of 20, which encourages me to believe the firm's dividend can continue to out-pace dividends from the FTSE 100.

Foolish summary
Pearson scores well on most metrics, which encourages confidence that the dividend will continue to grow.

Right now, the forecast full-year dividend is 47.41 pence per share, which supports a possible income of 4% That's not bad, but Pearson can stay on my watchlist for now.

Pearson is one of several dividend out-performers on the London stock exchange. There's one man who's as keen as I am to find, and invest, in them. I suggest you read all about his best investment ideas now in this free, time-limited report, while you have the chance: 8 Income Plays Held By Britain's Super Investor. This free report analyses the 20 billion-pound portfolio of legendary high-yield expert Neil Woodford. Click here to discover his favorite dividend opportunities with good growth potential.

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