View from City Road: So where are these lavish dividends?

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The Independent Online
Politicians like Messrs Dorrell and Cook should talk to companies at the sharp end before next declaiming on the vexed issue of dividends.

Take Boots. Far from finding itself short on funds for investment, the group is having trouble finding profitable places to put its money. Last year it generated almost pounds 200m of free cash, even after adjusting for an early dividend payment. And that was despite spending almost as much on fixed assets and acquisitions.

And things can only get worse. This year it will be hard-pushed to get its operating cash inflow below pounds 100m. Its board is already doubtless enduring sleepless nights deciding what to do about the pounds 94m raised from the Farley rusks sale, not to mention the pounds 600m-plus it could potientially get if it decides to sell its pharmaceutical business.

It would dearly love to invest its growing cash mountain on, say, buying more city centre shops. Its problem is that it cannot find enough suitable purchases - a headache shared by an increasing number of retailers.

Britain is already adequately shopped. Next, Marks and Spencer, Argos and Sears are all finding there is not enough space on the high street - or, more to the point, people to shop there - to justfy their using their burgeoning cash mountains to create yet more new stores. Instead the money just keeps on piling up in their balance sheets.

Acquisitions would be an alternative way of soaking up the cash, of course. The trouble is that most retail companies have a dismal record in this area. Boots is still suffering from the Ward White deal, Marks and Spencer can hardly be said to have covered itself in glory with Brooks Brothers and Dixons is still rueing the day it ever heard of Silo.

Fortunately, those with the biggest cash piles are the least likely to squander them on ill-judged deals. Argos burned its fingers on Chesterfield so is looking very long and hard at other diversification possibilities; Marks and Spencer is no longer the adventurous type; Next has already learned the bitter lesson of over-expansion; the record of Boots and Sears means they would find it hard to persuade shareholders of the wisdom of a sizeable deal.

Sooner or later some company will find the urge to squander large sums on feckless expansion irresistible. But for the moment they are almost all in tune with one of Mr Dorrell's preachings: keeping the cash away from shareholders.

Sir James Blyth, chief executive, has made it clear there will be no bumper dividend payments at Boots until Do It All is sorted out and its pharmaceutical review completed. With the exception of Next, none of the other cash-rich companies have shown undue generosity to their shareholders.

Maybe they should. After all, they might chose to spend the resulting proceeds on a little retail therapy.

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