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The dividend yield on Related British Meals‘ (LSE:ABF) shares is respectable somewhat than spectacular, at round 3%. However I consider it’s nonetheless one of many FTSE 100‘s most engaging dividend shares to contemplate immediately.
Excluding 2020, the garments retailer and meals provider has grown annual payouts in 9 of the final 10 years alone. And dividends have risen strongly because it suspended dividends in the course of the Covid-19 pandemic.
For the final monetary yr (ended September), ABF elevated the peculiar dividend 33% to 63p per share. It additionally forked out a 27p per share particular dividend.
Metropolis analysts anticipate this spectacular document of dividend rises to proceed over the subsequent three years at the least, albeit at a decrease price.
| Monetary year | Dividend per share | Dividend progress | Dividend yield |
|---|---|---|---|
| 2025 | 68.55p | 9% | 3.1% |
| 2026 | 73.40p | 7% | 3.3% |
| 2027 | 76.20p | 4% | 3.4% |
After all, previous efficiency is not any assure of future returns. So I want to contemplate fastidiously how real looking these projections are.
On high of this, I want to contemplate the potential for additional share value weak point that will offset any rising dividends. ABF shares have fallen 5.5% in worth over the previous yr.
Right here’s my verdict.
Trying good
The very first thing to have a look at is how nicely predicted dividends are lined by anticipated earnings. I’m trying to find a studying of two occasions and above.
Pleasingly, Related British Meals scores excessive right here. For the three years to fiscal 2027, dividend cowl’s between 2.8 occasions and a couple of.9 occasions. This gives a good margin of security in case income disappoint.
In different excellent news, ABF’s sturdy steadiness sheet offers it added flexibility to continue to grow dividends at a fast tempo. Its internet debt to adjusted EBITDA ratio was simply 0.7 as of September, comfortably inside its goal of “nicely below 1.5 occasions“.
Encouragingly, ABF says that “surplus capital could also be returned to shareholders by particular dividends or share buybacks” if the ratio sits beneath 1. It’s a pledge the corporate continues to make good on.
In addition to paying that particular dividend for final yr, the agency introduced an additional share buyback programme. It plans to repurchase £500m of its shares up till subsequent September.
A high FTSE inventory
Issues are trying vivid for ABF traders chasing dividends then. However as I say, share pickers have to additionally think about the potential of additional value weak point that might injury returns.
Fierce competitors at Primark is only one menace to the corporate’s market worth. Different dangers embrace rising prices, and notably huge bills associated to its world enlargement technique.
Nevertheless, I’m anticipating ABF’s share value to get well robustly over time. I’m most excited by the outlook for Primark as demand for worth clothes soars the world over.
And thus far, the corporate’s retailer rollout programme is successfully capitalising on this chance. New shops in its US and European markets drove gross sales 6% increased in fiscal 2024.
The enterprise additionally gives diversification by its sturdy meals and substances divisions. On steadiness, I believe it’s a high earnings inventory to contemplate.
