Is Next plc A Better Income Stock Than National Grid plc, GlaxoSmithKline plc, Lloyds Banking Group PLC And Imperial Brands PLC After Today’s Trading Statement?

Does Next plc (LON:NXT) (LSE:NXT.L) offer superior dividend prospects than National Grid plc (LON:NG) (LSE:NG.L), GlaxoSmithKline plc (LON:GSK) (LSE:GSK.L), Lloyds Banking Group PLC (LON:LLOY) (LSE:LLOY.L) and Imperial Brands PLC (LON:IMB) (LSE:IMB.L)?

Next plc

Next plc (LON:NXT) (LSE:NXT.L) has released a trading statement for the year to 24 December 2016. Next Brand full price sales fell in the 54 days from 1 November to 24 December by 0.4%. This was an improvement on Q3 and was better than the run rate for the full year. However, growth versus Q4 of the previous year was anticipated due to it being a poor comparator.

Sales for the full year increased by 0.4%, although full price sales are down 1.1%. That’s in spite of Next Directory sales rising by 3.6%, with Next Retail sales down 4.3%. On a brighter note, Next’s Overseas sales rose by 18% versus the previous year.

Sales in the end-of-season Sale are down 7% on last year. This has contributed to a reduction in central guidance for full year group profit, which now stands at £792 million. This may increase or decrease by £7 million depending on trade in January. This compares to previous guidance of between £785 million and £825 million, with Next now forecasting a fall in EPS versus the prior year of 0.6%.

Next is preparing for another tough year in FY 2018. It expects the cyclical slowdown in spending on clothing and footwear to continue into next year. It therefore anticipates that profit before tax will fall by between 2% and 14%, with a lower guidance of £680 million and an upper guidance of £780 million for FY 2018.

In order to provide greater certainty to its investors, Next has stated that it expects to pay quarterly special dividends of 45p per share for FY 2018. It expects to remain strongly cash generative, with surplus cash from operations of between £255 million and £345 million. Therefore, Next remains highly appealing as an income stock in my view, with it forecast to yield 3.8% from special dividends alone in FY 2018.

This is superior to the top interest rates for savings accounts and is comparable to popular dividend shares such as National Grid plc (LON:NG) (LSE:NG.L), GlaxoSmithKline plc (LON:GSK) (LSE:GSK.L), Lloyds Banking Group PLC (LON:LLOY) (LSE:LLOY.L) and Imperial Brands PLC (LON:IMB) (LSE:IMB.L). For example, National Grid yields 4.7%, Lloyds has a yield of 4.9%, GlaxoSmithKline’s yield is 5.3% and Imperial Brands has a yield of 4.9%.

In my view, Next faces a risky short term outlook, so isn’t one I’m looking to trade via CFD trading accounts. However, we should give the general business credit in my view as it is expected to remain cash generative despite the difficulties it faces from a slowdown in UK retail. Therefore, I believe that Next has long term appeal as a dividend stock, although I feel it is likely to be more volatile than other popular income shares in the short run.

About Robert Stephens 5138 Articles
Robert Stephens is a CFA Charterholder and an Equity Analyst by trade. He is a passionate private investor who has been buying and selling shares for many years, owning a wide range of UK shares in the process. He has written for Citywire and The Motley Fool US and now runs his own business. To contact Robert, please email [email protected] or use one of the other contact methods available on the 'Contact Us' page