Dividend rise puts spark into Dixons

Dixons, the electrical goods retailer, sent its shares surging nearly 18 per cent yesterday with a big hike in its dividend and a promise it has put last year's troubles behind it.

John Clare, the chief executive, said Dixons has learnt the lessons of its disastrous Christmas and is planning a big new marketing push to counter bad publicity for the group's extended warranties.

Although Dixons unveiled a 1 per cent decline in annual profits, the dividend's 10 per cent rise pushed shares up 19.75p to 131.5p, the best level since January's profit warning.

Mr Clare said Christmas sales had been poor because Dixons had failed to stock enough gift items, such as discmans, small kitchen goods and portable music centres. "Since Christmas we have tackled the issue of disappointing peak sales, found out what it meant and what it will mean, and done a lot of work to get the business back on track," Mr Clare said. "We had the products in our range, but we didn't have them at the right price, didn't promote them or have enough volume. This year we will take a slightly different approach."

Analysts took Mr Clare's mea culpa as a signal to turn more positive on the stock, and saw the rise in dividend, to 6.7p for the full year, as a sign of management's confidence in the future.

Even the issue of extended warranties, which is the subject of a Competition Commission investigation, seems to weigh less on the market's sentiment towards Dixons. Such warranties - which Dixons styles as "service contracts" - proved more difficult to sell as consumers became aware of the competition inquiry.

The Commission completes its review in September but no longer seems likely to ban electrical retailers from selling extended warranties, preferring instead longer cooling off periods or better in-store information. Mr Clare said the investigation, which has "absorbed a great deal of management time", had also given Dixons new ideas on how to promote and run its service contracts, which will be unveiled later this year. The group said yesterday it was creating 250 jobs in the call centres which service these contracts.