LONDON -- Can Compass Group's dividend continue to beat the wider market?
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 Compass Group (LSE: CPG.L).
But can the company's dividend continue to outperform its index? Let's test its financial mettle.
Compass is the world's largest contract caterer and also runs coffee shops, vending machines and bakery outlets. With the shares at 706 pence, the market cap is 13.2 billion pounds. This table summarizes its recent financial record:
| Year | 2007 | 2008 | 2009 | 2010 | 2011 |
| Revenue (million pounds) |
10,268 |
11,440 |
13,444 |
14,468 |
15,833 |
| Net cash from operations (million pounds) |
466 |
662 |
833 |
1053 |
964 |
| Earnings per share (pence) |
15.2 |
22 |
30 |
35.7 |
39 |
| Dividend per share (pence) |
10.8 |
12 |
13.2 |
17.5 |
19.3 |
So, the dividend has increased by 79% during the last five years -- equivalent to a 15.6% compound annual growth rate.
Compass employs over 56,000 people within its worldwide food and support services organization in around 50 countries.
The company has a firm focus on food service but also provides related services. A recent contract win with miner Rio Tinto is typical; Compass is to provide food, cleaning, and accommodation management at Rio's New Greater Brockman Village.
Business has been growing steadily and the company achieved revenue of 1.95 billion pounds and operating profits of 114 million pounds during 2011. Around 44% of revenues come from North America, 38% from Europe and Japan, and 18% from fast-growing and emerging markets.
The company sees its Fast Growing and Emerging Markets sector, which includes countries such as Brazil, Turkey, and South Africa, as being increasingly important to its forward growth strategy, according to the directors.
If such growth can continue to generate cash flow, it can only be good news for the dividend, judging by past performance.
Compass Group's dividend growth score
I analyze four different features of a company to judge whether its dividend can continue to rise:
1. Dividend cover: Around twice by earnings and one-and-a-half times by free cash. 3/5
2. Net cash or debt: Net gearing is about 28%. 4/5
3. Cash flow: Cash flow supports profits. 4/5
4. Outlook and recent trading: Good recent trading and a cautiously positive outlook. 4/5
Overall, I score Compass 15 out of 20, which encourages me to believe the firm's dividend might continue to outpace dividends from the FTSE 100.
Foolish summary
Although European trading has been difficult, Compass is still growing revenues around the world and converting that business to cash. With debt under control and a positive outlook, strong cash flow like that bodes well for the dividend.
Right now, the forecast full-year dividend is 23.44 pence per share, which supports a possible income of 3.3%. That's reasonable, but I'll keep the firm on my watchlist for now.
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