Burberry: An FTSE 100 Dividend-Raising Star

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

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

 

2007

2008

2009

2010

2011

Dividend per Share (pence)

19.1

20.2

17.1

16.2

18.1

That's disappointing. 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 Burberry Group (LSE: BRBY.L  ) .

The big question is whether Burberry's dividend can continue to outperform its index. Let's put the company under scrutiny and test its financial mettle.

Burberry owns the well-known check-pattern fashion brand. It sells products through directly operated stores, department stores, and specialty retailers around the world.

With the shares at 1,392 pence, the market cap is 6.14 billion. This table summarizes the company's recent financial record:

 

2008

2009

2010

2011

2012

Revenue (millions of pounds)

995

1,202

1185

1501

1587

Net Cash From Operations (millions of pounds)

45

210

369

265

374

Adjusted Earnings Per Share (pence)

32.4

30.6

35.9

49.9

62.8

Dividend per Share (pence)

12

12

14

20

25

So the dividend has increased by 108% during the last five years -- equivalent to a 20.1% compound annual growth rate.

Burberry can trace its evergreen brand back to its establishment in 1856. You'd think people would get bored with it over the decades, but the quintessentially English check pattern appears to retain its appeal to trendy people around the world, judging by sales.

Clothing accounts for 61% of worldwide sales, and the company finds imaginative uses for the famous pattern to generate the remaining 39%. Of those sales, 37% come from the fast-growing Asia-Pacific region, 32% from Europe, 25% from the Americas, and 6% from the rest of the world.

At the last count, Burberry had 451 direct retail outlets and 58 franchises.

I wouldn't want to bet on Burberry falling out of fashion anytime soon, considering its long history and recent demand from newly affluent countries abroad. If the firm continues to convert that demand to cash flow, the prospects look good for the dividend.

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

  1. Dividend cover: Both earnings and free cash cover the dividend around 2.5 times. Score: 4/5
  2. Net cash or debt: There's net cash on the most recent balance sheet. Score: 5/5
  3. Cash flow: Cash flow supports profit, and both are trending up. Score: 5/5
  4. Outlook and recent trading: Both the outlook and recent trading are robust. Score: 5/5

Overall, I score Burberry 19 out of 20, which encourages me to believe the firm's dividend can continue to outpace dividends from the FTSE 100.

Foolish summary
With robust cash flow, zero debt, and a bullish outlook, Burberry appears to be on top of its game.

Right now, the forecast full-year dividend for Burberry is 29.19 pence per share, which supports a possible income of 2.1% for 2013. Although the business is performing well, at that level Burberry will have to stay on my watchlist for the time being.

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Further investment opportunities:

Kevin does not own any shares mentioned in this article. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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