Marks & Spencer’s dividend yield: Is it big enough to offset the risks?

As dividend-paying stocks go, Mark’s & Spencer is not exactly a “hidden champion”. On the contrary, it’s a company that just about everyone in the UK (investor or not) is aware of.

Because of its long history as the centrepiece of many UK high streets, the company is often seen as a safe and dependable investment, and today the company’s shares can be purchased for about 330p and with a dividend yield of around 5.5%.

Safe, dependable and with a yield of 5.5%; what’s not to like?

But the reality of the last decade or two shows that M&S is not quite as safe and dependable as its enduring presence suggests.

In fact, after recently reviewing M&S I found a company that:

  • Is strongly cyclical (which is normal for clothing retailers)
  • Has grown very slowly (and failed to keep up with inflation)
  • Tends to increase its dividend unsustainably during economic booms (only to cut it back during the next inevitable bust)
  • Is carrying large debt and pension liabilities (which is usually not a good idea for cyclical companies)

But it isn’t all bad news. If the company continues to focus on its more successful food business rather than its ailing clothing business, then things may just work out better in the future than they have in the recent past.

To read my full review of M&S just click on one of the links below:

Marks and Spencer Dividend Review - 2017 02
Click to download

Is M&S’s near-6% dividend yield big enough?

Author: John Kingham

I cover both the theory and practice of investing in high-quality UK dividend stocks for long-term income and growth.

8 thoughts on “Marks & Spencer’s dividend yield: Is it big enough to offset the risks?”

  1. John, Of the £5bn of property on it’s books, do you know how that compares to what it has leased?

    M&S may well recover, but then the pace of change to online seems to imply that there may no longer be a normal cycle resuming. Next is also subject to that possibility.

    Card Factory is interesting — It’s operating margins are 20%+ compared to M&S which has 5%+. It also has growth.

    I think both will give a +ve share price return, however, with special dividend thrown in, CARD will give you close to 9%, without the debt and the pension.

    1. Hi LR

      I still think we’ll have cycles, whether people buy things in shops or online. If there’s a recession then money will be too tight to mention (as somebody once sang) and so either way some things will not be purchased during downturns. This tends to apply less to food, so as M&S leans more towards its food business it will become less cyclical, but that’s a different shift than from offline to online.

      But if you or somebody has evidence to say that online business as less cyclical than offline businesses then I’m happy to change my tune.

      Perhaps online is less cyclical. If people can buy a shirt via their phones they’re more likely to keep buying even when they shouldn’t, because it makes impulse purchases easier than if they had to actually go somewhere to visit a shop.

      As for Card Factory, I don’t know anything about it. It isn’t on my screen as it doesn’t have the ten-year dividend record that I require, so I’ll just take your word for it (for now!).

      1. “as somebody once sang”

        Ahh John, I think you simply read that from somewhere, no?

        I guess my phrasing probably was confusing — I guess I’m also convinced about the cyclical nature of both online and offline — no problem with that.

        I think the cyclical recovery, however, could be weaker for the likes of M&S and Next, as they continue to lose market share (mostly to online – for clothing) and both on and offline for food.

        I like M&S at the current level and popped some in my basket recently and will hold. On Card Factory — the company does have a trading record beyond 10 years, but you are right it doesn’t have the listed track record that fits your criteria, and won’t have for some time — so yep I guess that’s a pass in your portfolio.

        I’ll keep you up to date on the performance — I’ll post you a card John 🙂

        Regards LR

  2. McColl’s Retail Group
    PLC is a holding company. The Company through its holdings
    operates in the convenience & newsagent sectors. The Convenience
    stores are branded McColl’s & the Newsagents are branded Martin’s
    DY (pr) % 5.77 ROCE % 68.3 PSR x 0.20 interest cover x 9.93.

  3. Thoughtful article, John.

    The thing with M&S is they are MISSING Stuart Rose, its pragmatic CEO!
    Anyway, M&S need to have two CEOs, one focusing on food and the other on fashion. And, given the closure of BHS and others its a bit surprising they haven’t taken market share.

    I can also see the company following the business model of WH Smith by expanding and promoting quality in food, but downsizing its fashion lines and selling the essentials. This would help increase profit and free cash flow margins.

    There is always a third option and its to sell to Philip Green! If that is the route they choose, then I will bet my shirt that MR GREEN would reward himself a tasty dividend (like BHS) before dragging the firm to the cleaners!

    1. Hi Walter. The two CEO idea is interesting and probably right. But rather than WH Smiths I see the future M&S as more like Waitrose with posh food at the core and high quality pants, socks and bras (and perhaps other “non-fashion” clothing items) as a significant sideline.

      Also, I think it could get a lot of mileage out of focusing on Made in Britain clothing, which it already does to a limited extent. That might bring back the glory days when you could buy a pair of M&S jeans once every five years and know exactly what you were going to get, rather than the Made in China/Vietnam/etc. size and quality lottery that you get today.

      As for Mr Green, the less said the better.

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