AstraZeneca: 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 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 (in 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 AstraZeneca  (LSE: AZN  ) (NYSE: AZN  ) .

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

AstraZeneca is a pharmaceutical company created in 1999 when Sweden's Astra and the U.K.'s Zeneca merged. With the shares at 2,982 pence, the market cap is 37,158 million pounds. This table summarizes the firm's recent financial record:

  2007 2008 2009 2010 2011
Revenue (in millions) $29,559 $31,601 $32,804 $33,269 $33,591
Net cash from operations (in millions) $7,510 $8,742 $11,739 $10,680 $7,821
Adjusted earnings per share $4.38 $5.10 $6.32 $6.71 $7.28
Dividend per share $1.87 $2.05 $2.30 $2.55 $2.80

So, the dividend has increased by 50% during the last five years -- equivalent to a 10.6% compound annual growth rate.

With several of its best-selling brands coming off patent, thus opening up the market to competition, Astra confirmed investors' expectations by posting an almost 19% revenue decline, year-on-year, with its third-quarter results released on Oct. 25. The new CEO, Pascal Soriot, doesn't seem to think restoring growth will be a quick fix, either. There are headwinds for the industry, such as governments' and the private sector's ability to pay; increased government intervention on pricing; health care and R&D costs rising faster than GDP -- a trend exacerbated by ongoing global economic turmoil; and the decline in probability of success for bringing a product from pre-clinical testing to regulatory approval and launch.

Nearly all Astra's trading geographies have been affected by falling sales, and the company has a big world presence, employing around 57,200 employees in more than 100 countries, including emerging markets like China, Brazil, Mexico and Russia. To support its global operations, the company invests around $4 billion in research and development each year.

Looking at the figures, Astra's struggles are showing up mostly in cash flow, which makes me a little cautious on the prospects of further dividend out-performance. That said contrarian minded investors often pick up their bargains when companies hit a sticky patch. But will Astra become cheaper yet? Over to you.

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

  1. Dividend cover: Last year's dividend was covered 2.6 times by adjusted earnings. 4/5
  2. Net cash or debt: At the last count, net gearing was around 17%. 4/5
  3. Cash flow: Cash flow falls short of profits and has been trending down. 1/5
  4. Outlook and recent trading: Recent trading has been poor and the outlook is cautious. 2/5

Overall, I score AstraZeneca 11 out of 20, which causes me to believe the firm's dividend growth may struggle to outpace dividends from the FTSE 100.

Foolish summary
Although dividend cover is good and debt seems under control, cash flow has been trending down and the outlook is fragile, which makes me cautious.

Right now, the forecast full-year dividend is around 186 pence per share, which supports a possible income of 6.2%. That looks quite attractive for income investors but in my search for strong dividend growers, I'll sit on the sidelines and watch Astra, for now.

AstraZeneca 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 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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