Just as the Marks & Spencer (LSE: MKS) label was once a staple of many British wardrobes, the stock was also very popular among small investors. It may not be the glittering star it was once was, but Marks ended last year with over 100,000 small shareholders owning 1,000 or fewer shares each. Many will have been cheered by the company’s recent restoration of its dividend. Could an improving Marks & Spencer dividend forecast mean now is the time for me to add the company to my portfolio?
Payout plan
In its final results last week, Marks & Spencer announced that, although there would be no dividend for last year, “we plan to resume dividend payments at our interim results.”
That clearly bodes well, although a plan to restore payouts in future is not the same as actually restoring them.
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There is a risk of weaker-than-hoped business damaging the planned dividend restoration. But after the recent announcement, I expect the board will be focused on bringing back the payout at the time of the interim results, scheduled for November.
The forecast
What might such a dividend look like?
The last financial year for which both interim and final dividends were paid was 2019. That year, the dividend was 13.9p per share. That consisted of an interim payment of 6.8p and final dividend of 7.1p.
At today’s share price, an equivalent dividend would mean a dividend yield of 7.7%. That is a juicy sounding prospect for a blue-chip company such as Marks.
But will the payout reach those former levels? In 2019, the company’s total operating profit before adjustments was £726m. Last year it was lower, coming in at £626m. But a return to the former dividend level seems possible. At the post-tax statutory profit level, 2019 saw Marks earn only £29m compared to £365m last year.
With basic earnings per share last year of 18.5p, bringing back the dividend at its 2019 level looks doable to me.
Shifting priorities
However, after some years of not paying shareholders dividends, it remains to be seen how much of a priority they are for the board. There is no shortage of things on which the business could spend its money, to combat risks that range from rising competition to supply chain inflation.
A realistic dividend forecast must take into account the company’s strategic priorities as well as its ability to pay. On that basis, I suspect the dividend will come back at a lower level than in 2019.
On top of that, the retailer as a business does not particularly attract me. It has had such an unpredictable few years, seemingly moving from one problem to another. The brand still has potential as it is known and loved by millions of customers, not only in the UK but internationally too.
But the company’s ongoing challenges to maintain market share and its uneven financial performance mean there are other retailers I would rather own. For now, I have no plans to add the shares to my portfolio.
