Halma shows how it is done with fortieth consecutive dividend increase

Wednesday, June 12, 2019 - 11:56

"It might not be a household name although a record of 40 consecutive increases of more than 5% in Halma’s annual dividend suggests that it should be, especially as this track record means the FTSE 100 firm is a good example of how a company that gets the basics right can reward patient investors," says Russ Mould, AJ Bell Investment Director.

"The company continues to think on a long-term basis, with careful investment in new products and services and prudent capital allocation. Investment in organic growth comes first, select acquisitions second and enhanced returns to shareholders next, which is the correct way around. If the first two are done well then the third will largely take care of itself.

"There are strong regulatory drivers associated with Halma’s hazard detection and life protection products and the company’s ongoing investment means it continues to maintain and develop the competitive position of its core business. Both of these facets are reflected in an operating margin of 21.1%, toward the upper-end of management’s target range of 18% to 22%, and strong cash flow which both funds the dividends and keeps debt reassuringly low.

"Management continues to use select, small acquisitions to supplement existing momentum within the business, not create or transform it with one knock-out, potentially high-risk deal.

"In addition, the combination of a strong competitive position, long-term thinking and high margins translates into a phenomenal track record of growth in the annual dividend payment to shareholders.

Dividend per share in pence

Source: Company accounts

"Even if the dividend yield itself is just 0.8% (based on the historic payment of 15.71p per share and a share price of £19.26) investors should not be deceived. Halma’s dividend has doubled in the past decade alone and the manner in which this reflects the company’s strong long-term position and transmits management’s confidence in the future brings share price rewards.

"While Halma's shares have occasionally been buffeted by wider market forces, such as the bear market of 2007-09, they have provided strong total returns over time, combining capital growth and dividends, helping investors protect their wealth from the ravages of inflation.

  Last 10 years Last 40 years   Jun-79 Jun-09 Jun-19
Change in retail price index (%) 283% 417%   55.7 213.4 288.2
Change in Halma share price (%) 6159% 69683%   2.8 172.8 1,926.00
Total return from Halma share price (%) 4978% 175110%   348.2 17,678.90 610,028.40

Source: Thomson Reuters Datastream

This is not to say the past will be a certain guide to the future but Halma does show that the stock market can be a get-rich-slowly tool, when it works well, when it is used properly and when a company management team puts customers first, in the knowledge they are there to manage the business and its operating assets and not the share price."

These articles are for information purposes only and are not a personal recommendation or advice.


The chart of the week is written by Russ Mould, AJ Bell’s Investment Director and his team.


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