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 |
19.1 pence |
20.2 pence |
17.1 pence |
16.2 pence |
18.1 pence |
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 British Sky Broadcasting Group (LSE: BSY.L).
The big question: Can the company's dividend continue to outperform its index? Let's take a closer look.
BSkyB is the satellite broadcaster running digital TV platform Sky. With the shares at 753 pence, the market cap is around 12.4 billion pounds. This table summarizes the firm's recent financial record:
|
Year to June |
2008 |
2009 |
2010 |
2011 |
2012 |
|---|---|---|---|---|---|
|
Revenue (millions of pounds) |
4,952 |
5,359 |
5,709 |
6,597 |
6,791 |
|
Net cash from operations (millions of pounds) |
877 |
1,074 |
1,364 |
1,357 |
1,500 |
|
Adjusted earnings per share |
25.1 pence |
25.9 pence |
32.1 pence |
41.6 pence |
50.8 pence |
|
Dividend per share |
16.75 pence |
17.6 pence |
19.4 pence |
23.28 pence |
25.4 pence |
So, the dividend has increased by 52% during the last five years -- equivalent to a roughly 11% compound annual growth rate.
Despite the tough economic environment, Sky TV has found its way into more than 10 million homes and that figure seems set to continue growing.
It's good business, which the company manages to turn into strong flows of cash. Once on board the Sky ship, customers have historically been very loyal, and the firm quotes annualized churn rates typically as low as around 10%.
There's been good progress with product diversification, too. At the last count, 32% of customers took BSkyB's TV, broadband, and telephone options all together. So with growth continuing in both breadth and depth, the escalating flows of cash bode well for the prospects of the dividend.
BSkyB's dividend growth score
I analyze four different features of a company to judge whether its dividend can continue to rise:
1. Dividend cover: the recent dividend was twice covered by adjusted earnings. 4/5
2. Net cash or debt: net gearing is around 200% of an intangible-heavy net asset figure 2/5
3. Cash flow: good support for profits from cash flow and both trending up. 5/5
4. Outlook and recent trading: good recent trading and a cautiously positive outlook. 4/5
Overall, I score BSkyB 15 out of 20, which encourages me to believe the firm's dividend can continue to out-pace dividends from the FTSE 100.
Foolish summary
Although BSkyB carries a fair slug of debt, it manages interest payments comfortably from its highly repetitive cash flow. Recent trading has been encouraging.
Right now, the forecast full-year dividend is 28 pence per share for 2013, which supports a possible income of 3.7%. That's quite good, but I'm keeping BSkyB on my watch list for the time being.
BSkyB 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: "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.
If you are an ambitious investor hoping to profit from this uncertain economy, as I am, I urge you to read "10 Steps To Making A Million In The Market" today -- it could transform your wealth. Click here now to request your free, no-obligation copy. The Motley Fool is helping Britain invest. Better.
Further investment opportunities:
