Even during the tumultuous trading conditions of the past couple of years I’ve kept faith with PZ Cussons (LSE: PZC) and its ability to deliver exceptional shareholder returns looking ahead.
The Imperial Leather manufacturer’s troubles have been no little secret as sales have struggled in both its developing and established territories. But Cussons found itself splashed all over the front pages in May when it elected to freeze the full-year dividend, bringing the curtain down on its record of 44 successive annual dividend increases.
The decision to lock payouts at 8.28p per share was in response to a string of profits reversals in recent years, and the City believes that, with earnings expected to fall again, albeit fractionally, in the year to May 2019, the dividend will remain unmoved for a second consecutive fiscal period.
Big, big yields
This is far from a catastrophe, though. Firstly, the projected forward dividend yields an enormous 3.8%. And secondly, profits are finally expected to tick higher again in fiscal 2020, by 8% in fact. And this means dividends are predicted to rise to 8.6p per share, a forecast that nudges the yield to 4%.
All in all I consider it to be a bit of a bargain at current prices. As well as those chunky yields, Cussons carries a prospective P/E ratio of 16 times, a figure that’s a snip when you contemplate the brilliant long-term revenues opportunities in its core emerging markets.
We all know how a combination of rising spending power and booming population levels in destinations like Africa and Asia are already driving business at the household goods manufacturers, a point that is helping to boost business at the likes of Reckitt Benckiser as I recently discussed. And a report from public policy organisation The Brookings Institution put some more meat on the bones of my bullish investment case, and particularly for Cussons given its huge presence across East and West Africa.
Bless the gains down in Africa
Earlier this month it commented that “in light of the increasing affluence, population growth, urbanisation rates, and rapid spread of access to the internet and mobile phones on the continent, Africa’s emerging economies present exciting opportunities for expansion in retail and distribution.”
Consumer spending on the continent has already impressed in recent years, expenditure having risen at a compound annual growth rate of 3.9% since 2010 and culminating in 2015’s total expenditure figure of $1.4trn, Brookings noted. And it expects the spending figure to surge to $2.1trn by 2025, and to $2.5trn by 2030.
As if this isn’t reason enough for Cussons’s shareholders to get excited about, Brookings added that “African consumers are savvy and brand loyal,” music to the ears of a company producing a stable of consumer favourites which also comprises Original Source shower gels and Morning Fresh washing up liquid.
It may be having some trading troubles now, but the long-term outlook for Cussons remains as exciting as it’s ever been. I’d happily buy it today in expectations of brilliant profits growth in the years ahead and a resumption of its ultra-progressive dividend policy.