Today I am looking at household goods colossus Reckitt Benckiser‘s (LSE: RB) (NASDAQOTH: RBGLY.US) dividend outlook past 2014.
Dividends growth to slow before long-term recovery
Reckitt Benckiser has punched explosive earnings growth during the past five years, with galloping activity in emerging markets helping to drive compound growth of 13.6% during the period. This has subsequently enabled the firm to increase dividends at an eye-watering compound annual growth rate of 13.8% since 2008.
However, earnings growth rates have dropped off substantially during the period, with a 7% expansion in 2012 down markedly from the 27% rise punched in 2008. And the company is expected to post its first earnings decline for many a year in 2013 — results for which are due on Wednesday 12 February — with a 1% drop. A slight improvement is expected this year before earnings rise by a more substantial 6% in 2015.
Even though Reckitt Benckiser is anticipated to keep dividend growth moving through to the end of next year, projected expansions are expected to roll at a much lower rate than those of previous years. A 3.7% on-year increase, to 138.9p per share, is expected for 2013, with an additional 4.5% increase forecast for this year to 145.1p. The dividend is predicted to hit 154.7p in 2016, a 6.6% improvement.
These projected payout slowdowns push the yield in line with that of the wider market, with Reckitt Benckiser currently sporting readouts of 3.1% and 3.3% for 2014 and 2015 respectively. This compares with a current prospective average of 3.2% for the FTSE 100.
Reckitt Benckiser has shown terrific resilience in developing markets, even as many of its industry peers have been subject to wavering performance in these regions of late. Indeed, the company saw turnover in the LAPAC (Latin America, Asia Pacific, Australia and China) and RUMEA (Russia, Middle East and Africa) territories rise 11% and 6% correspondingly in January-September.
Despite fears of economic cooling in these regions, I believe that the supreme pricing power and constant product innovations across Reckitt Benckiser’s ‘Powerbrands’ — from Durex condoms through to Nurofen painkillers — should enable it to continue punching strong earnings growth over the long-term, assisted by the possibility of acquisition activity in the near future and recovering performance in its Western markets.
In my opinion this bodes well for a resumption in the firm’s ultra-generous dividend policy in coming years.