Next: An 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 that the aggregate payment from Britain's top 100 companies has yet to regain its pre-recession peak:

 

2007

2008

2009

2010

2011

Dividend per Share (pence) 19.1 20.2 17.1 16.2 18.1

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 Next (LSE: NXT.L  ) .

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

Next is a clothing retailer selling through retail outlets and by mail order. With the shares at 3,609 pence, the market cap is 5.9 billion pounds. This table summarizes its recent financial record:

 

2007

2008

2009

2010

2011

Revenue (millions of pounds) 3,272 3,407 3,298 3,454 3,441
Net Cash From Operations (millions of pounds) 449 572 452 452 526
Adjusted Earnings per Share (pence) 156 188.5 217.6 221.9 253.9
Dividend per Share (pence) 55 66 78 78 90

The dividend has increased by 64% during the last five years -- equivalent to a 13.1% compound annual growth rate.

Though it traces its trading roots back more than 150 years, Next was created as a brand in 1982 to offer coordinated collections of branded women's wear and accessories in boutique-style shopping environments -- something of a novelty back then, according to the company.

Menswear joined the range in1984, home interiors in 1985, and children's wear in 1987. The brand launched in catalogue form in 1988 and online in 1999. Since then, the firm has added flowers, gifts, sports gear, baby clothes, and electrical to its range.

Business has been brisk throughout its chain of more than 500 stores in the U.K. and Ireland, its 200 primarily franchised stores around the world, and its home-shopping catalogues and websites that serve around 50 countries.

Last year, around 64% of sales were through its retail division, 32% through its catalogue and Internet directory division, just more than 2% from its fledgling international Internet division, and the rest from other sources. Going forward, the company seems committed to expanding into new store space and driving Internet sales.

That growth, if turned into solid flows of free cash, should bolster the prospects for the dividend, despite the cautious outlook.

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

  1. Dividend cover: Adjusted earnings covered the last dividend almost three times. Score: 4/5
  2. Net cash or debt: Net debt is just below last year's profits. Score: 4/5
  3. Cash flow: Cash has been running behind profits but seems to be trending up. Score: 3/5
  4. Outlook and recent trading: There are good recent results and a cautious outlook. Score: 3/5

Overall, I score Next 14 out of 20, which encourages me to believe the firm's dividend can continue to outpace dividends from the FTSE 100.

Foolish summary
With under-control debt, a commitment to further growth, and reasonably strong flows of cash, Next looks set to weather the frequent global economic showers that seem to blow through. So long as demand for the brand holds up, the progressive dividend policy looks sound.

Right now, the forecast full-year dividend is 111.08 pence per share, which supports a possible income of around 3%. That's not bad, but the firm can stay on my watchlist for now.

Next is one of several dividend outperformers 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 analyzes the 20 billion pound portfolio of legendary high-yield expert Neil Woodford. Click here now to discover his favorite dividend opportunities with good growth potential.

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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.


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