Can Cobham's Rising Dividend Beat the FTSE?
Jun 25th 2012 12:24PM
Updated Jun 25th 2012 12:30PM
LONDON -- The last few years have been tough for investors relying on the FTSE 100 (INDEX: ^FTSE) 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)|
Still, there are companies out there that, despite the banking crash and gloomy economy, have managed to deliver a rising dividend throughout the last five years. One such name is FTSE 250 company Cobham (ISE: COB.L) .
If you don't know, Cobham is an international aerospace and defense company whose products and services find their way into military and civil systems. It's been trading for more than 75 years and has three divisions employing about 10,000 people, with customers in 100 countries or so.
With the shares at 226 pence, the market cap is 2.6 billion pounds. This table summarizes Cobham's track record:
Sales (millions of pounds)
Profits (millions of pounds)
Earnings per Share (pence)
Dividend per Share (pence)
As you can see, the dividend has increased by 78% during the last five years -- equivalent to a 15.5% compound annual growth rate.
Cobham's strategy is to build positions in faster-growing markets, with a high-tech focus. The group develops cutting-edge and technically differentiated products and services, expanding both organically and through targeted acquisitions, such as recent purchase Satcom business Thrane and Thrane. The strategy seems to work, as recent contract wins have seen the order book jump by 25% to 2.5 billion pounds in the first quarter of 2012 alone.
But what I really like about Cobham is the consistently strong current of cash flow that its operations generate. The firm seems to command a technical edge that keeps its services strongly in favor with its customers. This happy situation has enabled a robust balance sheet and a commitment to dividend growth.
Cobham's dividend-growth score
I analyze three different features of a company to judge whether its dividend can continue to rise:
- Dividend cover: Earnings covered the last dividend just more than twice. Score: 4/5
- Net cash/debt: Net gearing is modest and near 23%. Score: 4/5
- Outlook/recent trading: Modest progress is expected this year. Score: 4/5
Overall, I score Cobham 12 out of 15, which encourages me to believe the firm's dividend can continue to outpace dividends from the FTSE 100.
While the world has been fretting over economic concerns, Cobham has been getting on with the development of its aerospace and defense business. It has chalked up an impressive 500 million pounds or so in new business already this year, and the execution of that is likely to be highly cash-generative, if past performance is a guide.
And converting new business into cash is just what's needed to maintain a progressive dividend policy. Indeed, I reckon the outlook for Cobham's dividend is good. Right now, the forecast full-year dividend is around 8.6 pence per share, which supports a possible income of 3.8%. Given the impressive dividend growth rate that Cobham has achieved recently, the shares and potential income look attractive to me.
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The article Can Cobham'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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