Marks and Spencer (LSE:MKS) shares were once known for steady passive income until the company suspended payouts in 2020. Nonetheless, strong sales and widening margins could soon see it paying dividends again. This has piqued my interest with the stock also up 25% this year.
A rich history
As a former dividend aristocrat, M&S has a history of paying steady dividends. However, its slow progress as it tried to modernise its business and products saw profits declining along with payouts. More recently, the FTSE 250 firm has paused shareholder returns. Instead, the retailer has been using its spare cash to rejuvenate the business.
Data source: Marks and Spencer
Analysts are pencilling in a return of dividend payments this year, but this is yet to be confirmed. CEO Stuart Machin mentioned that a decision will only be made when Marks and Spencer shares its full-year results in May.
Although the projected yields aren’t lucrative by any means (2.9%), I invest for the long term. I would imagine given M&S’s strong growth trajectory, a return to its pre-pandemic amount is a realistic possibility in 2026. In such a case, Marks and Spencer shares would have a handsome forward yield of 8.8% if I were to buy at current levels.
Producing growth
So, how might M&S pay such a high dividend? That would be down to its turnaround plan. When Machin was first installed as CEO last year, he devised a turnaround plan (building on success already seen under his predecessor) to continue driving the retail giant’s recovery.
Data source: Marks and Spencer
While the firm may only be in phase one, the turnaround is slowly taking shape. Recently, Marks and Spencer has outperformed many of its supermarket and clothing peers while growing its market share. This was reinforced by another set of strong figures from its most recent Christmas update.
Metrics
Total sales growth
Like-for-like sales growth
Food sales
10.2%
6.3%
Clothing and home (C&H) sales
8.8%
8.6%
Total UK sales
9.7%
7.2%
International sales
12.5%
N/A
Total sales
9.9%
N/A
Data source: Marks and Spencer
The group’s performance has been so good that management has opted to accelerate its store rotation programme. Having witnessed better footfall from retrofitted stores, the board is confident that new stores will boost footfall and sales volumes.
Additionally, M&S has been managing its capital very efficiently with an improving return on capital employed. Its strategic moves to vertically integrate suppliers and acquire modern clothing brands should bring more room for margin expansion. What’s more, its focus on developing a top-class omnichannel experience is something that excites me.
Data source: Marks and Spencer
‘Remarksable’ value
Are Marks and Spencer shares a buy for me then? Well, its valuation multiples would suggest so. In fact, the business is currently trading at cheaper multiples than peers Tesco and Sainsbury’s.
Metrics
Marks and Spencer
Industry average
Price-to-book (P/B) ratio
1.0
1.4
Price-to-sales (P/S) ratio
0.3
0.3
Price-to-earnings (P/E) ratio
10.0
14.1
Forward price-to-sales (FP/S) ratio
0.3
0.5
Forward price-to-earnings (FP/E) ratio
11.0
12.8
Data source: Simply Wall St
Moreover, M&S has a decent balance sheet. Declining debt levels paired with improving free cash flow should help its case for a return in dividends payments. As such, it’s no surprise to see Deutsche recently upgrading the stock from ‘hold’ to ‘buy’, with a price target of £2.10. This presents a healthy 27% upside from current levels, which looks even more lucrative when I take possible future dividends into account.
Data source: Simply Wall St
Ultimately, all signs are pointing towards the start of a major turnaround for the firm. Machin and his team have done an excellent job so far, and I’m excited to see what comes next. I’ll be expanding my position while the shares are still cheap.
The post Marks and Spencer shares: future dividend darlings appeared first on The Motley Fool UK.
5 stocks for trying to build wealth after 50
Markets around the world are reeling from the current situation in Ukraine… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.
But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.
Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…
We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.
Claim your free copy now
setButtonColorDefaults(“#5FA85D”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#ffffff”, ‘color’, ‘#FFFFFF’);
})()
More reading
UK shares: 3 cheap stocks to buy in February
UK shares: 2 FTSE retail stocks to buy and 2 to avoid in February
Marks and Spencer: how its shares could benefit from Ocado’s poor performance
Marks and Spencer shares: the hottest FTSE 250 stock I’d buy today
Earnings season: Marks and Spencer sales fizz, but will its share price do so too?
John Choong has positions in Marks And Spencer Group Plc. The Motley Fool UK has recommended J Sainsbury Plc and Tesco Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
