LONDON -- To me, capital growth and dividend income are equally important. Together, they provide the total return from any share investment and, as you might expect, my aim is to invest in companies that can beat the total return delivered by the wider market.
To put that aim into perspective, the FTSE 100 has provided investors with a total return of around 3% per annum since January 2008.
Quality and value
If my investments are to outperform, I need to back companies that score well on several quality indicators and buy at prices that offer decent value.
So this series aims to identify appealing FTSE 100 investment opportunities, and today I'm looking at Burberry Group (LSE:BRBY), owner of the famous distinctive check-design brand and operator of dedicated retail outlets around the world.
With the shares at 1,335 pence, Burberry's market cap is 5,902 million pounds.
This table summarizes the company's recent financial record:
|Year to March||2008||2009||2010||2011||2012|
|Revenue (million pounds)||995||1,202||1,185||1,501||1,857|
|Net cash from operations (million pounds)||45||210||369||265||374|
|Adjusted earnings per share (pence)||32.4||30.6||35.9||49.9||62.8|
|Dividend per share (pence)||12||12||14||20||25|
In recent news, new Chief Operating Officer John Smith has started in the job, just after the release of the company's latest three-month report, covering the period to Dec. 31, 2012.
It's always nice to be part of a winning team, but Smith could have a hard act to follow judging by the strength of recent trading. Underlying revenue growth in the Asia-Pacific region came in at 16%; impressive enough, but all the more so given that 41% of overall sales came from the area in the quarter. Meanwhile, Europe, accounting for 27% of sales, grew at 4%, the Americas, with 26% of sales, grew at 4%, and the 12% sales in the rest of the world grew at 6%.
Burberry has a fine-tuned plan for growth, which aims to capture even more of that fast-growing Asian demand. As long as the ever-so-English check holds its fashion appeal, as it has for the past 160 years, the total-return prospects for Burberry shareholders continue to look attractive.
Burberry's total-return potential
Let's examine five indicators to help judge the quality of the company's total-return potential:
- Dividend cover: Adjusted earnings covered last year's dividend 2.5 times. 4/5
- Borrowings: At the last count, there was net cash on the balance sheet. 5/5
- Growth: Revenue and earnings have been growing with robust cash flow. 5/5
- Price to earnings: A forward 17 seems to price in growth and yield expectations. 3/5
- Outlook: Good recent trading and a positive outlook. 5/5
Overall, I score Burberry 22 out of 25, which encourages me to believe the company has potential to outpace the wider market's total return going forward.
There isn't much to grumble about with regard to the scoring on the business-quality metrics. The valuation seems to price-in growth expectations; however, the outlook is encouraging.
I'm encouraged to buy Burberry on the dips along with a share that one of the Fool's top investment writers reckons is the "Motley Fool's Top Growth Share for 2013." In this new Fool report, you can discover how the company has re-envisioned itself to allow for tremendous growth along new horizons. Right now, the report is free to download and tells you exactly why our expert has invested in, and expects strong growth from, this changing company with a strong pedigree. To get your copy, click here.
Kevin Godbold owns no shares in Burberry. The Motley Fool has recommended Burberry. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.