- Provides you with a list of 10 companies with 16 years of CADI (consecutive annual dividend increases) from the FTSE.
- My screen uses valuation metrics such as Price/Earnings, Price/Cash Flow PS, Price/Pre-Tax-Profit and Return On Capital Employed.
- Dividend Yield, Payout Ratio, Dividend Cover and Dividend Growth Rates are the most important when screening for dividend growth stocks.
- Cranswick, Aggreko and Weir are considered the best in this list.
- If you plan on purchasing Aggreko or Weir, suggest adding higher-yielding stocks to compensate for the lack of current yield from these two.
Since I joined Seeking Alpha, I've always wanted to share my knowledge of the U.K. market, as I'm obviously from the U.K. Below, I will show the 57 stocks out of the FTSE 350 I'm currently monitoring, and what great deals can be found. I'll then follow this up with some analysis of the companies with the most straight years of dividend growth.
To fit the criteria, most companies needed a market cap of over £2 billion, the only exceptions to this were companies that have progressive growth and dividend policies in place. I understand that MedicX Fund doesn't use typical valuation metrics as a REIT, so NAV PS and P/FFO are used outside of this screen.
Interesting to note were the number of companies showing 16 straight years of dividend growth, hence the name given for this article. I have looked over the work of other contributors here providing analysis on U.K. companies and realized they didn't include most of the dividend history. The furthest I can track is 1997-1998 on the website ADVFN, which has provided more than what the company websites did. I may have to email each company to see a complete dividend list if it predates what is available on their website. Let's have a closer look below on each individual sweet sixteen!
Amec (OTC:AMCBF) (LSE: AMEC)
Amec is one of the world's leading engineering, project management and consultancy companies. It delivers projects and services for its customers in the oil and gas, minerals and metals, clean energy, environment and infrastructure markets. This is an international company with major operations centers in the U.K. and Americas, with offices and projects in around 40 countries worldwide. Its customers in both the private and public sector are among the world's biggest and best in their fields - BP, Shell, EDF, National Grid and U.S. Navy, to name a few.
Amec's revenue for 2013 was reported at £3974m, slightly down compared to £4158m in 2012, however, increasing its margin efficiency meant pre-tax profit grew from £263m to £327m. Due to the revenue, this means the EPS also decreased to £0.61 from £0.68. The company generated cash flow of £240m from operations, and from this, £40m was used on investing and a further £189m on financing, leaving the company with a cash increase of £11m for the year.
Johnson Matthey (OTCPK:JMPLF) (LSE: JMAT)
Johnson Matthey is a chemicals company specializing in platinum. The company has four main divisions, which are Catalysts & Chemicals, Precious Metals, Colors & Coatings and Pharmaceutical Materials. The primary business is platinum refining and making catalytic converters to filter car pollutants. The future growth potential comes from its research into platinum-based cancer drugs and fuel cells.
Johnson Matthey's revenue for 2014 was reported at £11,155m a nice increase from £10,729m the previous year. For the past several years, the company has increased its profit margin along with its pre-tax profit for a double whammy. The end figure was £406m from £355m the previous year, and this represented 3.64% of total revenue. The company generated cash flow of £477m from operations, and from this, £218m was used on investing and a further £95m used on financing, which leaves the company with a cash increase of £164m for the year, significantly beating previous years by a wide margin.
Bloomsbury Publishing (OTC:BMBYF) (LSE: BMY)
Bloomsbury Publishing plc is an independent, worldwide publishing house of fiction and non-fiction, with its headquarters in the London borough of Camden, and publishing offices in London, New York, Sydney and Delhi. The company's growth over the past decade is primarily attributable to the Harry Potter series by J.K. Rowling. Bloomsbury was named Publisher of the Year in 1999 and 2000 by the British book industry. It published The Finkler Question by Howard Jacobson, which won the 2010 Man Booker Prize.
The company's revenue for 2014 grow to £109m, an increase from £98m the previous year, while the pre-tax profit decreased slightly from £9.8m to £9.5m. The EPS also slightly decreased from £0.1081 to £0.1057, so not a great deal in the grand scheme of things. The company generated cash flow of £11m from operations, which is a nice increase from £8m the previous year. With this cash, £11m was used for investing and a further £4m on financing, giving a decrease of £4m from the cash reserves.
Associated British Foods (OTCPK:ASBFY) (LSE: ABF)
Associated British Foods is controlled by the Weston family. The Westons still own over 50%, and through their careful husbandry, it now owns a raft of the U.K.'s best-known brand names, including Elephant Atta, Twinings Tea, Ovaltine, Primark and British Sugar. A big engine for growth recently has been the Primark stores.
Revenues have been growing at a steady pace of 10% a year, on average, over the past 5 years, mainly due to the continuing success of Primark, the giant discount clothing retailer. This also means we have steady growth for the company's pre-tax profit and EPS. The major downside is that the company is massively overpriced, sporting a P/E ratio of 40.71! This explains the miniscule dividend yield of 1.06% due to price appreciation, with an impressive 23% performance year-to-date. Unfortunately, this means we can't invest unless the share price drops to around $26, in line with the historic P/E ratio of 18.43.
Cranswick (OTC:CRWCY) (LSE: CWK)
Cranswick is a leading U.K. food supplier providing the consumer with a range of great tasting food that includes fresh pork, gourmet sausages, cooked meats, air-dried bacon and sandwiches, along with a variety of non-meat products. Food is supplied under licensed brands and retailers' private labels. These include Bodega, Weight Watchers, Woodall's, Simply Sausages, Red Lion Foods and The Black Farmer.
A personal favorite in the screening process, and a company that come to my attention a few months ago. Revenue has been growing at a pace similar to that of Associated British Foods, achieving 10% a year, on average, over the past 5 years. Short-term debt has been increased, I assume to enable leveraging in the company's favor; I'm not too concerned about this, as Cranswick has grown its assets at a faster pace. The company generated cash flow of £60m from operations, and from this, £41m was used on investing and a further £14m on financing, leaving the company with a cash increase of £5m for the year.
Spirax-Sarco Engineering (OTCPK:SPXSF) (LSE: SPX)
Spirax-Sarco Engineering is a multi-national group comprising two world-leading niche businesses: Spirax Sarco for steam specialties and other industrial fluids, and Watson-Marlow for peristaltic and niche pumps.
Revenue has been growing at a slower pace with this company compared with others on the list, generating £689m for 2013 compared to £662m, for a 4% increase. However, the EPS growth was impressive at £1.33 compared to £1.15, for a 15% increase. This helped the company give a generous dividend increase, like it has done for some time now. The company generated cash flow of £117m from operations, and from this, £62m was used on investing and a further £69m on financing, giving a decrease of close to £14m from its cash reserves. This gives me no pause for concern, as the company is still left with £84m in the bank.
Weir (OTC:WEIGF) (LSE: WEIR)
Weir is a leading global engineering solutions provider; the company is focused on designing, manufacturing and supplying innovative products and expert engineering services for the minerals, oil & gas and the power & industrial markets.
The company has greatly improved on its bottom line, as its pre-tax profit and net profit are at record levels of 17.75% and 13.78% respectively. Revenue stayed somewhat flat at £2430m for 2013 compared to £2538m, for a decrease of 4.28%. The pre-tax profit of £431m exceeded the previous year by £7m, despite the decrease in revenue. The company has been growing an envious amount of cash flow, which stood at £390m from operations, compared to £286m for 2012 and £199m for 2011. With this, £304m was used on investing and a further £393m on financing, giving a decrease of £307m from its cash reserves. The money was used to decrease short- and long-term debt, which is always welcome to see.
Aggreko (OTCPK:ARGKF) (LSE: AGK)
Aggreko is the global leader in the rental of power and temperature control. It helps companies increase profits by creating opportunities, solving problems and reducing risk, using its unique network of global locations, equipment and technical services. With over 100 locations in more than 30 countries, it offers 24/7 services to companies across a variety of industries. Its vision is to be the leading global player in the specialist energy market.
The company's revenues decreased along with its margins for 2013, but to be honest, it was barely noticeable; £1573m compared to £1583, for a 0.7% decrease. Margins have also decreased by 2% for the year, but this is to be expected when a company experiences growth. The company generated cash flow of £509m from operations, and from this, £214m was used on investing and a further £277 on financing, giving a cash increase of £18m for the year.
Interserve is one of the world's foremost support services and construction companies, operating in the public and private sectors in the U.K. and internationally. The company offers advice, design, construction, equipment, facilities management and front-line public services.
Revenues were not that great for 2013, ending at £2193m compared to £2370m for the previous year, for a decrease of 7.5%. Also the pre-tax profit margin fell by 4.6%, which really hurt not only the net profit but also the EPS. EPS fell from £1.32 to £0.39, for a 70.45% drop. This data may be skewed due to extreme results in 2013, but nevertheless, EPS of £0.46 for 2011 and £0.40 for 2010 is still a decrease based on those figures too. The only positive that can be seen is that the company is increasing assets slightly faster than debt. Though, in this company's case, maybe leveraging is not the smartest idea. The company generated cash flow of £38m from operations, and from this, £65m was used on investing and the company generated £23m from financing, giving a decrease of £4m from its cash reserves.
RPS Group (OTC:RPSGF) (LSE: RPS)
RPS Group is Europe's leading development, environmental and energy resources consultancy, and the only one to be listed in London. The company advises 2 key areas, the exploration and production of energy and other natural resources, and the development and management of the built and natural environment.
Revenue has been slowly increasing over the past few years, with £568m for 2013 compared to £556m for 2012, for an increase of 2.11%. Pre-tax profit of £44m compared to £40m, for a 10% increase. Considering the company has been growing DPS figures above 10% for the past 10 years, further due diligence is needed to determine if this can continue. A dividend cover of 1.78 is quite weak, with a payout ratio of 56.14%. The company generated cash flow of £43m from operations, and from this, £42m was used on investing and the company generated £3m from financing, giving a cash increase of £4m for the year.
I've created a quick facts chart giving investors information on each company; this can be seen below:
The main factors when considering dividend growth stocks are, in no particular order, dividend yield, payout ratio, dividend growth and dividend cover. The company also needs to be able to increase revenues and cash flow to generate the cash needed to distribute dividends to shareholders.
My favorites from the 10 companies I've provided are Johnson Matthey, Cranswick, Weir and Aggreko. Considering the market cap, we are able to see that 3 of 4 the were among the biggest, with only Associated British Foods above them. Cranswick is the nice surprise that I mentioned I found a few months ago, considering its small size to everyone else; it's nice to see a dividend cover of 2.77 and such a small payout ratio of 36.08%. This should provide dividend growth long into the future, provided its business remains stable and revenues increase at a satisfying pace.
If we are to use the total rank used in my personal screen, Cranswick is among the cheapest to buy, if we use the metrics for P/CF, P/E, P/PTP and ROCE. Though it doesn't grow dividends as fast as the other 3, being such a small company gives great future growth prospects, while giving a better dividend yield. The safest dividend growth companies are Aggreko and Weir, but my problem is the current dividend yields that are below 2%. Weir has experienced price appreciation of 22.47% since the start of this year, giving a nice total return for its shareholders.
The U.K. has some amazing dividend growth companies, and I hope this article has helped you consider choosing some of them in the future to strengthen and diversify your portfolio.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Currently completing my position in Sainsbury's, then will be adding Cranswick to portfolio in August.
Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.