Struggling to stay on trend and leaving some loyal buyers unhappy. That has described not only the retailer Marks & Spencer (LSE: MKS) but also its share price in recent years.
But with the business trading well of late, the shares have soared over 80% in the past year. That still leaves them 27% below where they were five years ago.
But historically, one of the attractions of owning Marks & Sparks was its dividend. How does the current dividend forecast grab me?
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Ongoing pain
Right now the company does not pay a dividend. The last one it paid was back in 2020. That was only half the level of the same payout a year before. The dividends were then cut altogether and have remained cancelled ever since.
In fact, I think Marks & Spencer shares offer a great example of why, as an investor, diversification is an important risk management tool.
Five years ago, I would have expected M&S to keep paying its longstanding dividend. If I had invested on that basis without balancing my portfolio, it could have been a very costly error. I would now be receiving no dividend income and own shares worth less than what I paid for them.
Forward focus
However, as the very phrase ‘dividend forecast’ suggests, nobody ever knows for certain what will happen to it in the future. Past performance is not necessarily an indicator of what will happen in future when it comes to dividends.
As part of its final results in May, the company announced a plan to “restore [the] dividend” in its current financial year, which runs until the end of next April.
What does that mean? Does ‘restoring’ dividends mean bringing them back at the level at which they were suspended? Or could it simply mean bringing back a dividend of any size at all?
My interpretation would be the former. However, the company said it plans to restore “a modest annual dividend”. That is expected to start with the interim results, due to be announced in November.
Modest dividend
What might such a ‘modest’ dividend look like? Last year, earnings per share were 18.5p. That would be ample to bring back the pre-pandemic dividend, which before it was cut was on course to be just under 7p per share.
I am sceptical however, that a ‘modest’ restoration would see the dividend brought back at its old level straight off the bat. Rather, I expect a full-year dividend of 4-6p. That would suggest a prospective dividend yield of under 3%.
Over time, of course, the payout could grow substantially higher than this dividend forecast, if the business performance was strong enough to support it.
But, for now, that prospective yield does not tempt me when many blue-chip companies are yielding two or three times as much.
I also remain unpersuaded about the long-term growth outlook for Marks & Spencer. The company has done a good job modernising its offering and widening its footprint of food outlets.
Its trusted brand is an asset. But it operates in a brutally competitive market, as its recent history has repeatedly shown. I have no plans to buy the shares for my portfolio.
