Reckitt Benckiser: A FTSE 100 Dividend-Raising Star

Before you go, we thought you'd like these...
Before you go close icon

LONDON -- In an outcome that's tough on investors, the FTSE 100 (INDEX: ^FTSE) 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 that 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

19.1p

20.2p

17.1p

16.2p

18.1p

That's disappointing. 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 Reckitt Benckiser (ISE: RB.L) .


The big question is can Reckitt's dividend continue to outperform its index? Let's put the firm under scrutiny and test its financial mettle.

Reckitt Benckiser is a household cleaning products manufacturer with worldwide operations. With the shares at 3,592 pence, the market cap is around 26 billion pounds. This table summarizes the company's recent financial performance:

Year

2007

2008

2009

2010

2011

Revenue (millions of pounds)

5,269

6,563

7,753

8,453

9,485

Net cash from operations (millions of pounds)

975

1,333

1,948

1,544

1,740

Earnings per share

127.9 pence

154.7 pence

194.7 pence

213.8 pence

237.1 pence

Dividend per share

55 pence

80 pence

100 pence

115 pence

125 pence

So the dividend has increased by 127% during the last five years -- equivalent to a 22.8% compound annual growth rate.

Reckitt and Benckiser merged in 1999 after developing as individual businesses throughout the 19th century. Today, the company is the world's largest household cleaning products manufacturer with more than half its revenues generated from its fabric care and surface care divisions.

Reckitt's strong consumer brands drive the success of its operation, such as Finish, Dettol, and Cillit Bang. As well as developing new names in house, the firm keeps watch for well-known brands that it can acquire to help fuel its expansion. In 2005, it added the Nurofen, Strepsil, and Clearasil brands to its portfolio with the 1.9 billion pound acquisition of Boots Healthcare International.

Right now, the firm derives around 43% of revenue from Europe, 25% from North America and Australia, 24% from developing markets, and 8% from its pharmaceutical division. Developing markets have powered recent sales growth. That's encouraging, as Reckitt has a fine history of converting revenue growth to cash flow growth-ideal for supporting a progressive dividend policy.

Reckitt Benckiser's dividend growth score

I analyze four different features of a company to judge whether its dividend can continue to rise:

1. Dividend cover: Earnings covered the recent dividend around 1.9 times. 3/5

2. Net cash/debt: The recent interim results showed net gearing around 34%. 4/5

3. Cash flow: Cash flow supports profits and both are trending up. 5/5

4. Outlook and recent trading: Both recent trading and the outlook are good. 4/5

Overall, I score Reckitt Benckiser 16 out of 20, which encourages me to believe the firm's dividend can continue to outpace dividends from the FTSE 100.

Foolish summary
Although dividend cover is lower than I would like to see, Reckitt's cash flow credentials, manageable borrowings figure, and positive trading outlook are all reassuring.

Right now, Reckitt's forecast full-year dividend is 132.24 pence per share for 2013, which supports a possible income of 3.7%. That looks attractive to me.

Reckitt Benckiser 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, while you have the chance: 8 Income Plays Held By Britain's Super Investor. This free report analyses 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 "Ten 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:

The article Reckitt Benckiser: A FTSE 100 Dividend-Raising Star 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.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story

Want more news like this?

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

From Our Partners