LONDON -- 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 (ISF 0.44%), 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 Schroders (SDR +0.00%).
The big question is whether the company's dividend continue to out-perform its index. Let's take a closer look.
Schroders is a fund manager serving client-investors such as large corporations, organizations in the public sector, pension funds, charities, high-net-worth individuals, and retail investors. With the shares at 1,656 pence, the market cap is around 3,747 million pounds. This table summarizes the firm's recent financial record:
| Year | 2007 | 2008 | 2009 | 2010 | 2011 |
|---|---|---|---|---|---|
| Revenue (millions of pounds) | 1,192 | 936 | 769 | 1,439 | 1,502 |
| Net cash from operations (millions of pounds) | 505 | 134 | 371 | 1,067 | 427 |
| Adjusted earnings per share (pence} | 105 | 76 | 57 | 112 | 116 |
| Dividend per share {pence} | 30 | 31 | 31 | 37 | 39 |
So the dividend has increased by 30% during the past five years -- equivalent to a 6.8% compound annual growth rate.
Schroders earns around 94% of its profits from asset management and 6% from private banking. At the last count on Nov. 8, the firm was managing around 203 billion pounds of funds. From that, it generates 84% of revenues from management fees alone. A further 2.5% comes from performance fees, which have the potential to grow much larger when investment conditions become easier. There's also an 11% revenue take from other fees and 2.5% from interest on funds held in the company's private banking arm.
The financial landscape has been austere for several years, but Schroders has flourished. It puts that success down to its 3,000 or so "talented people" who work from 33 offices in 26 countries across Europe, the Americas, Asia, and the Middle East, all helping the firm to invest in equities, fixed income, multi-asset, and alternatives.
If the company is trading well now, it's difficult to see it faltering when world economic conditions improve. That makes me optimistic about the dividend's prospects.
Schroders' 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 almost three times. 4/5
2. Net cash or debt: the most recent balance sheet shows net cash. 5/5
3. Cash flow: strong support for profits from cash flow. 4/5
4. Outlook and recent trading: satisfactory recent trading; outlook cautiously positive. 4/5
Overall, I score Schroders 17 out of 20, which encourages me to believe the firm's dividend can continue to out-pace dividends from the FTSE 100.
Foolish summary
There's a good showing on all four indicators. The only issue is valuation.
Right now, the forecast full-year dividend is around 43 pence per share, which supports a possible income of 2.6%. That valuation is a bit rich for me, so I'll keep Schroders on watch.
Schroders is one of several dividend out-performers 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."
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