Shareholders raise a (soft) drink to Nichols as firm returns to dividend list

“Soft-drink maker Nichols’ declaration of a 28p-per-share interim dividend means the Newton-le-Willows firm will become the fourth in the UK to re-join the dividend list, following Focusrite, Palace Capital and Land Securities, having cancelled a previous payment,” says Russ Mould, AJ Bell Investment Director.

“Land Securities has yet to confirm how much it will pay, and the other three have proposed dividend payments worth just £13 million in total (compared to £33 billion in cancellations, suspensions, deferrals or cuts across the UK market so far in 2020), but income-seekers will be hoping that this is a case of ‘from little acorns do mighty oaks grow.’

“Nichols scrapped an initially proposed final dividend for 2020 of 28p a share back in March. That move, designed to preserve cash at a time of huge uncertainty, snapped a growth streak in the annual dividend that stretched back to 2006.

Source: Company accounts

“Management is now going to treat 2019 and 2020 as one single period when it comes to assessing the final dividend, which will be based on the overall financial performance over that two-year span.

“Shareholders could therefore be in line for a further distribution next spring alongside the full-year results, even if trading clearly remains tough. Nichols’ profit momentum had already been hit by the impact upon sales of the war in Yemen, the UK’s sugar tax and a Sweetened Beverage Tax in the Middle East before the pandemic provided yet another challenge.

“First-half sales fell by 17% and operating profit by 77% as demand for its fizzy and still drinks were impacted by the closures of bars, pubs and restaurants during lockdowns.

“But careful cost control meant that Nichols still generated cash during the first six months of the year and its net cash pile rose to £46.9 million as a result. This financial solidity, coupled with a track record of double-digit operating margins and lofty returns on capital during more ‘normal’ economic circumstances, underpin the firm’s ability to start paying dividends once more.

“Were the company to match the first-half 2019 dividend payment of 12.4p a share in the second half, then that would take the total distribution for 2020 to 40.4p, equivalent to a yield of 3.4%. That is pretty much in line with the FTSE 100 and Nichols’ net cash balance sheet might offer a little extra reassurance so at least shareholders in the drinks maker are being paid while they wait to see what will happen next, given that great uncertainties still remain.

“If the pandemic were to spread around Africa that would be another hit to demand for Nichols’ products, while the pace of recovery in developed markets like the UK is difficult to predict, even as pubs and restaurants slowly start to reopen.”

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