Next PLC pays dividends for those who kept the faith

Next PLC (LSE:NXT) binned regular dividends in 2020-21 as the Covid-19 pandemic took hold but it has made it up with two special payouts.

To give the backstory, in 2020, Next PLC (LSE:NXT) released its full-year results (for the year to 31 January 2020) on 19 March, just a few days before the UK went into its first lockdown.

Like a lot of companies, it suspended dividend payments while it waited for the dust to settle from the pandemic fallout.

In the preceding year, the company had paid out 165p in dividends. At the time the stock was trading at about £80 – a pound or so above its current level – so the yield was a little over 2%, which is not great but in an economic environment where interest rates were less than one per cent, not bad either.

So, the suspension of the dividend hurt a bit but was understandable in the circumstances. Given the company’s strong online offering and the declining importance of the retailer’s bricks & mortar stores, it was perhaps an unnecessary precaution but Next as a company is nothing if not thorough in its preparations for most eventualities. 

Eventually, the (relatively) good times returned and the company has now pledged to resume regular dividends in 2022. In the meantime, shareholders have been kept sweet with two special dividends of 110p and 160p respectively over the last five months.

Sophie Lund-Yates, an equity analyst at Hargreaves Lansdown, described Next as a shining jewel of the high street.

“There aren’t many bricks and mortar retailers dishing out special dividends or upgrading guidance multiple times over. Next’s impressive performance has partly been down to returning demand for formal and occasionwear, as customers got ready for a festive season with a bit more cheer compared to last year but Next has also managed the business very well – stock levels have reduced, and labour shortages didn’t derail performance. The group’s stellar online business is to thank for propping things up, with another run of double-digit growth meaning reducing physical shop sales aren’t causing a headache,” Lund-Yates said.

Broker forecasts suggest the company will pay 195p or so in regular dividends in the year to 31 January 2022 (FY22) and around 240p the year after.

That was before Next raised guidance today for the fiscal year just about to end but also warned about cost inflation.

Next now expects full-year pretax profit for the current year to be £822mln, which is ahead of the current consensus forecast of £810.6mln.

The company has issued its initial guidance for FY22/23 and expects sales growth of 7.0% and profits of £860mln, which is up roughly 5% year-on-year but some 2% below the consensus forecast of £880.8mln.

The discrepancy between Next’s guidance and the market’s expectations is largely because of two things. The first is cost inflation and the second is…