Can Regus' Rising Dividend Beat the FTSE?
LONDON -- The last few years have been tough for investors relying on the FTSE 100 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 prerecession peak:
|Dividend per share (pence)||19.1||20.2||17.1||16.2||18.1|
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 Regus (ISE: RGU.L) .
Regus describes itself as the world's largest provider of flexible workspaces and runs business centers with office space and facilities to let in around 94 countries. The firm counts half of the Fortune 500 companies -- America's largest -- among its customers. With the shares at 90 pence, the market cap is 851 million pounds. Here's Regus' recent financial record:
|Revenue (million pounds)||862||1077||1055||1040||1163|
|Net cash from operations (million pounds)||191||214||98||79||159|
|Diluted earnings per share (pence)||10.4||11.8||7||0.2||4|
|Dividend per share (pence)||1||1.8||2.4||2.6||2.9|
So, the dividend has increased by 190% during the last five years -- equivalent to a 30.5% compound annual growth rate. That seems impressive.
There's clearly demand for outsourced office accommodation from businesses that ply their trades around the world; Regus' phenomenal growth from its establishment during 1989 testifies to that. Right now, it derives around 42% of revenue from the Americas, 26% from Europe, Middle East and Africa, 13% from Asia Pacific, 18% from the U.K., and 1% from the rest of the world.
If I had to categorize the company it would be as a "growing cyclical" -- yes, profits tend to dip in worldwide recessions, but the firm is expanding briskly, too. It aims to operate from 2,000 international locations during 2014 and opened 139 new centers in 2011 with a further 200 planned for completion by the end of 2012.
I like the way that Regus analyzes its activities under three headings: mature, which covers its first 1,000 locations, seen as "cash cows;" new, which is the newest 1,000 locations that drag on immediate earnings due to customer ramp up and capital infrastructure spend; and the final category, quirkily named third place, which encompasses new avenues for growth typically serving workers on the move at airports, motorway service stations and railway stations.
Regus' dividend growth score
I analyze four different features of a company to judge whether its dividend can continue to rise:
1.Dividend cover: Free cash flow covered last year's dividend more than four times. Score 5/5
2.Net cash/debt: There is a net cash pile of around 188 million pounds on the balance sheet. Score 5/5
3.Cash flow: Cash flow robustly supports profits and both are trending up. Score 5/5
4.Outlook/recent trading:"Inline" and steady as she goes. Score 4/5
Overall, I score Regus 19 out of 20, which encourages me to believe the firm's dividend can continue to outpace dividends from the FTSE 100.
Although there's a certain amount of cyclicality to the Regus operation, cash flow held up well enough to support the progressive dividend policy through the last recession. Unless there's a catastrophic slump in all world economic activity, I think there's every chance of a good cash flow performance going forward -- excellent for the dividend's prospects.
Right now, the forecast full-year dividend for Regus is 3.25 pence per share, which supports a possible income of 3.6% for 2012. Given the firm's recent progress, that looks attractive to me.
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The article Can Regus' Rising Dividend Beat the FTSE? originally appeared on Fool.com.Kevin does not own any shares mentioned in this article. The Motley Fool has adisclosure policy.
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