Johnson Matthey: An FTSE 100 Dividend-Raising Star

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.L  ) , 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 Johnson Matthey  (LSE: JMAT.L  ) .

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

Johnson Matthey is a chemical company focused on the processing and use of platinum. With the shares at 2413 pence, the market cap is around £4945 million. This table summarizes the firm's recent financial record:

Trading Year

2007

2008

2009

2010

2011

Revenue (£m) 7499 7848 7839 9985 12,023
Net cash from operations (£m) 229.6 501.4 275.7 122.9 464.4
Earnings per share 89.5p 89.6p 86.4p 119p 153.7p
Dividend per share 36.6p 37.1p 39p 46p 55p

So, the dividend has increased by 50% during the last five years -- equivalent to a 10.7% compound annual growth rate.

Johnson Matthey describes itself as a global specialty chemicals company underpinned by science and technology. It focuses on clean air, clean energy, low carbon technologies, and the application and recycling of precious metals.

The company's operations include manufacturing catalysts for cars, heavy-duty diesel, and other vehicles, and producing catalysts and components for pollution control systems, fuel cells, and chemical processes. It also produces chemicals and catalysts for the pharmaceutical industry, and is active in marketing, refining, and fabricating precious metals.

Johnson operates in around 30 countries and employs roughly 10,000 people. Business has been good and in addition to normal dividend payments, the company recently paid investors a special dividend of £1 per share. Such confidence in the company's prospects encourages optimism for the continuation of the firm's progressive dividend policy.

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

  1. Dividend cover: earnings covered the recent dividend around 2.8 times. (4/5)
  2. Net cash or debt: at the last count, net gearing was around 32%. (4/5)
  3. Cash flow: cash flow supports profits and both are trending up. (5/5)
  4. Outlook and recent trading: good recent trading with a cautious outlook. (3/5)

Overall, I score Johnson Matthey 16 out of 20, which encourages me to believe the firm's dividend can continue to outpace dividends from the FTSE 100.

Foolish summary
Strong cash flow and under-control debt encourages positive expectations for the dividend despite a cautious outlook statement.

Right now, the forecast full-year dividend is around 68 pence per share for 2014, which supports a possible income of 2.8%. That's a little low for me, so I'll keep Johnson 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. 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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