Now is not a good time to be Wm Morrison Supermarkets (LSE: MRW) (NASDAQOTH: MRWSY.US), not when you’re the poorest-performing company in a depressed and highly competitive sector. Shares in the whole sector have been under pressure after a few years of belt-tightening, with cut-price alternatives rapidly gaining ground.
What a crash!
But Morrison shares are down nearly 40% in 12 months, to 175p!
Perhaps surprisingly, the Morrison dividend has still been rising — last year’s 13p per share yielded 5.4%, and that’s among the best in the FTSE 100. And there’s even a forecast 7.8% for the year to January 2015! But how realistic is that? Here’s a look at last year and the latest forecasts:
| Year (to Jan) |
Dividend | Yield | Cover | Rise |
|---|---|---|---|---|
| 2011 | 9.6p | 3.6% | 2.40x | +17.1% |
| 2012 | 10.7p | 3.7% | 2.39x | +11.5% |
| 2013 | 11.8p | 4.7% | 2.31x | +10.3% |
| 2014 | 13.0p | 5.4% | 1.94x | +10.2% |
| 2015* |
13.5p | 7.8% | 0.90x | +3.8% |
| 2016* |
12.0p | 6.8% | 1.21x | -11.1% |
* forecast
If you looked at the last four years of dividend rises in isolation, you might say to yourself “Wow, this is the kind of company I want to provide me with income in old age“. Even looking at the mildly declining yield, you could be forgiven for thinking it’s just down to the general malaise of the supermarket business and that it will strengthen when things pick up.
But two things say otherwise.
Firstly, those forecasts — there’s a 50% drop in EPS expected for the current year, and a dividend yield that won’t be covered by earnings.
The real problem
But that’s just a result of the other thing — Morrison’s being woefully behind the leading edge of supermarket retail for quite some time. An online offering? Way behind the leaders, and only just getting off the ground as we speak. Variable-sized stores to make the most of the convenience market at supermarket prices? Great idea — just years behind Tesco, Sainsbury and Asda.
Morrison’s strength, then, must lie in beating the rest on prices? Nope — cue Aldi and Lidl.
What’s with the dividends?
So, are those last few years of rising dividends a portent of the long-term with the recent hardships just a temporary blip? No, to me it looks more like a denialist continuation of paying out too much money that just can’t be sustained much longer.
Would I buy Morrison with a long-term view to top dividend income over the next 10 years? Not a chance.