British Sky Broadcasting Group: A FTSE 100 Dividend-Raising Star

LONDON -- In an outcome that's tough on investors, the FTSE 100 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 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

19.1 pence

20.2 pence

17.1 pence

16.2 pence

18.1 pence

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 British Sky Broadcasting Group (LSE: BSY.L  ) .

The big question: Can the company's dividend continue to outperform its index? Let's take a closer look.

BSkyB is the satellite broadcaster running digital TV platform Sky. With the shares at 753 pence, the market cap is around 12.4 billion pounds. This table summarizes the firm's recent financial record:

Year to June

2008

2009

2010

2011

2012

Revenue (millions of pounds)

4,952

5,359

5,709

6,597

6,791

Net cash from operations (millions of pounds)

877

1,074

1,364

1,357

1,500

Adjusted earnings per share

25.1 pence

25.9 pence

32.1 pence

41.6 pence

50.8 pence

Dividend per share

16.75 pence

17.6 pence

19.4 pence

23.28 pence

25.4 pence

So, the dividend has increased by 52% during the last five years -- equivalent to a roughly 11% compound annual growth rate.

Despite the tough economic environment, Sky TV has found its way into more than 10 million homes and that figure seems set to continue growing.

It's good business, which the company manages to turn into strong flows of cash. Once on board the Sky ship, customers have historically been very loyal, and the firm quotes annualized churn rates typically as low as around 10%.

There's been good progress with product diversification, too. At the last count, 32% of customers took BSkyB's TV, broadband, and telephone options all together. So with growth continuing in both breadth and depth, the escalating flows of cash bode well for the prospects of the dividend.

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

1. Dividend cover: the recent dividend was twice covered by adjusted earnings. 4/5

2. Net cash or debt: net gearing is around 200% of an intangible-heavy net asset figure 2/5

3. Cash flow: good support for profits from cash flow and both trending up. 5/5

4. Outlook and recent trading: good recent trading and a cautiously positive outlook. 4/5

Overall, I score BSkyB 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
Although BSkyB carries a fair slug of debt, it manages interest payments comfortably from its highly repetitive cash flow. Recent trading has been encouraging.

Right now, the forecast full-year dividend is 28 pence per share for 2013, which supports a possible income of 3.7%. That's quite good, but I'm keeping BSkyB on my watch list for the time being.

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Further investment opportunities:

Kevin Godbold does not own any shares mentioned in this article. The Motley Fool has a disclosure policy.
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