The store group's final payout will not be covered by earnings in the period, but it now appears that the struggling retailer is moving towards either increasing its gearing or paying the dividend from reserves. "People should remember we have a very strong balance sheet," said Robert Colvill, finance director.
M&S would not comment directly on its dividend plans, saying that it would not take a decision until nearer the time of its full-year results in May. But the company appears to be attempting to steer the City away from expecting a cut.
City analysts have increasingly been forecasting a reduced dividend payout, saying that such a move would be sensible given the collapse in the group's profits. SG Securities this week forecast a cut in the final dividend from 10p per share to 4p. This was followed by a slightly less marked downgrade from WestLB Panmure, which has pencilled in a cut to 6.7p per share.
M&S's suggestions were greeted by surprise in the City. "Is this a prudent approach?" said one analyst. "If they feel that all the work they are doing with the supply chain and new ranges is going to improve the business dramatically, it would be understandable. But if profits are going to stay at around the pounds 500m to pounds 600m level, would they be better advised to adjust the dividend?"
Fund managers argue that there is nothing wrong with paying dividends out of company reserves, although this cannot be regarded as a long-term solution. M&S's problem is that its dividend level is based on the pounds 1bn profits the company recorded two years ago.
There have been several dividend cuts by companies in the beleaguered retail sector. Storehouse cut its dividend last week, when it reported a pounds 22m loss. Supermarket chain Safeway slashed its payout by 40 per cent this week to help fund a recovery plan. Arcadia - the former Burton group - is also widely expected to announce a dividend cut after its recent profits warning.
M&S managed to maintain its half-year dividend at 3.7p earlier this month, although it reported that interim profits had almost halved. The maintained payout was not covered by its earnings of just 2.1p per share.
The high-street stores group is planning to raise pounds 400m through the sale and securitisation of non-trading properties, with the proceeds slated to be used to fund a special dividend or share buyback.Reuse content