SABMiller: 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 (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 SABMiller  (LSE: SAB  ) . The big question is: Can the company's dividend continue to outperform its index? Let's take a closer look.

SABMiller dominates its South African home market, brewing the best-selling Castle larger brand. The beer maker renamed after acquiring struggling U.S. company Miller in 2002. With the shares at 2,780 pence, the market cap is 44,396 million pounds. This table summarizes the firm's recent financial progress:

Year to March

2008

2009

2010

2011

2012

Revenue (million)

$21,410

$18,703

$18,020

$19,408

$21,760

Net cash from operations (million)

$2,805

$2,183

$3,277

$3,043

$3,937

Adjusted earnings per share (cents)

143.1

137.5

161.1

191.5

214.8

Dividend per share (cents)

58

58

68

81

91

So, the dividend has increased by 57% during the last five years -- equivalent to an 11.9% compound annual growth rate.

SABMiller's directors continue to see strong potential for growth in the emerging markets that the company serves. Recent input cost pressures seem set to continue, but the firm has a great strategy for countering such effects -- it puts its prices up!

The firm owns over 200 beer brands, like Miller Lite and Grolsch, and operates in more than 75 countries. It also deals in soft drinks and is one of the largest bottlers of Coca-Cola products. Last year, around 23% of revenue came from Latin America, 20% from South Africa, 17% from Europe, 17% from North America, 12% from Africa, and 11% from the Asia-Pacific.

People rarely axe alcohol from their budgets no matter how hard the economic times, I reckon. That's useful when you own some of the world's most popular beer brands, and shows up in the company's record on cash and earnings generation. With growth still on the agenda and a product with great repeat-purchase credentials, I'm optimistic about the prospects of the dividend.

SABMiller'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 last year's dividend more than twice. 4/5
  2. Net cash or debt: Net gearing of 68%; borrowings over three times last year's earnings. 2/5
  3. Cash flow: Profits seem supported by a steadily increasing flow of cash. 4/5
  4. Outlook and recent trading: Robust recent trading and a cautiously positive outlook. 4/5

Overall, I score SABMiller 14 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 helps SAB to manage its hefty debt load. The firm scores highly on most indicators, and the outlook is encouraging.

Right now, the forecast full-year dividend is around 71 pence per share, which supports a possible income of about 2.6%. The shares are not selling cheaply so it can stay on my watchlist, for now.

SABMiller 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 to discover his favorite dividend opportunities with good growth potential.

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