Pace of dividend growth suggest Bunzl lacks confidence

“Investors weren’t in a positive mood on Tuesday despite remarks from Donald Trump that the US and China would ‘very shortly’ resume trade talks. European equities were down across the board including a 0.4% decline in the FTSE 100.

“A recent rare moment of strength in the pound served to weigh on UK stocks that earn in US dollars, explaining why the likes of Carnival and Ferguson were down,” says Russ Mould, Investment Director at AJ Bell.

Bunzl

“FTSE 100 member Bunzl has historically been seen as a defensive company, providing products that companies need to do business but not items they sell to customers.

“Unfortunately a slowdown in the global economy has made life much harder for Bunzl and proved that it is perhaps not as defensive as some people think.

“Its sales growth has been slowing this year and its latest half year results show a continuation of this theme. The number of acquisitions also seems lower than normal, either because the company is being cautious or business sellers want a higher price than Bunzl is prepared to pay.

“Perhaps the ultimate sign of Bunzl being very cautious is the pace of dividend growth which has fallen to a mere 2%. The previous five years saw 9% average dividend growth.

“Dividends are a good way to gauge how management are thinking; high payment levels would suggest confidence in future trading and financial strength; lower payment levels would suggest caution about near-term trading.

“Bunzl has a good track record of growing its dividend every year and that has become one of its key sales pitches to investors. Management would do everything they can to protect that track record. A 2% dividend increase from Bunzl is therefore a token payment to sustain its dividend growth status, but any other firm also nervous about future trading may not have raised the shareholder payment at all.”

IWG

“Regus-owner IWG is rumoured to be considering a spin-off of its US business and potentially listing it in New York. The timing is interesting as it coincides with the US float of rival WeWork.

“One can draw the conclusion that IWG is hopeful of getting a high valuation for the US operations, riding the hype of WeWork’s IPO.

“IWG could argue that it is superior to WeWork given how it makes a profit. In comparison, WeWork is loss-making and its business model is unproven in a severe market downturn.”

These articles are for information purposes only and are not a personal recommendation or advice.