Can Cranswick's Rising Dividend Beat the FTSE?

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LONDON -- The last few years have been tough for investors relying on the FTSE 100 (UKX) to deliver a rising dividend payout.

Looking at the iShares FTSE 100 ETF (ISE: ISF.L) , an exchange-traded fund that tracks the benchmark index, 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 share19.1p20.2p17.1p16.2p18.1p

But there are companies that have managed to deliver a rising dividend throughout the last five years despite the terrible macro-economic environment. One such name is Cranswick (ISE: CWK.L) .


Cranswick is a U.K. focused supplier of mainly pork products to the licensed brand and private label markets. With the shares at 835 pence, the market cap is 401 million pounds. This table summarises Cranswick's financial record:

Year

2007

2008

2009

2010

2011

Revenue (£m)

559

607

740

758

821

Net cash from operations (£m)

31

45

32

52

46

Earnings per share

49.1p

53.7p

69.7p

72.8p

72.9p

Dividend per share

19.9p

21.7p

25p

27.5p

28.5p

So, the dividend has increased by 43% during the last five years -- equivalent to a 9.4% compound annual growth rate.

The company has a firm focus on producing fresh pork and the many staple and luxury foodstuffs that it makes from it to tempt consumers.

After a challenging start to last year's trading due to high input costs, things turned up in the second half, and Cranswick went on to post significant growth in revenues in most product categories. For example, fresh pork sales were up 15%, sausages up 12%, bacon 39%, and sandwiches up 4%.

Cash-strapped consumers have been turning to pork-based proteins for the good value they offer, according to the directors. Sales growth seems to support that augment, but what I really like about Cranswick is the way it converts those sales into strong cash flow -- ideal for supporting a progressive dividend policy. The resilience of the firm's business model is also showing up in its progress on debt reduction -- the recent full-year results reveal net debt down 55% over the year before.

Cranswick's dividend growth score
I analyse four different features of a company to judge whether its dividend can continue to rise:

  1. Earnings covered the last dividend more than twice. Score: 4/5
  2. Net gearing is around 10% with 49-times interest cover. Score: 4/5
  3. Cash flow supports profits with both trending upwards. Score: 5/5
  4. Both the outlook and recent trading are good. Score: 4/5

Overall, I score Cranswick 17 out of 20, which encourages me to believe the firm's dividend can continue to out-pace dividends from the FTSE 100.

Foolish summary
Cranswick has an impressive trading record through the last recession. The food business can be steady if a company gets the formula right, and this particular company certainly seems to have done that. Cranswick's trading lines are doing well and the directors seem confident about further expansion going forward. I think that bodes well for the firm's dividend-supporting cash flows.

Right now, the forecast full-year dividend for Cranswick is 29.92 pence per share, which supports a possible income of 3.6% with the shares at 820 pence. That looks attractive given the firm's record on cash generation.

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Further investment opportunities:

The article Can Cranswick's Rising Dividend Beat the FTSE? originally appeared on Fool.com.

Kevin does not own any shares mentioned in this article. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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