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Fresnillo among 50 firms set to pierce dividend gloom

Silver miner among 50 UK-listed companies set to boost divis more than 10% in each of next three years
Fresnillo among 50 firms set to pierce dividend gloom
Fresnillo increased silver output at its Saucito mine in southern Mexico by 4% year-on-year

Commodity price woe may have cast a cloud over dividends in the mining sector, but Fresnillo (LON:FRES) is set to provide a silver lining.

While the likes of BHP Billiton (LON:BLT), Rio Tinto (LON:RIO) and Anglo American (LON:AAL) have slashed payouts, the Mexican precious metal miner is tipped to increase dividends by 95% by 2018.

Big dividend cuts by energy and mining firms are likely to drag down overall aggregate payouts across the FTSE 350 by 1% in the coming year.

But Fresnillo is among 50 UK-listed companies identified by economic data group Markit as likely to boost shareholder payouts by more than 10% in each of the next three years.

It is expected to be one of only three oil and basic resource companies among the 50.

Markit expects 18 of those firms to post above 15% dividend growth per year and one, housebuilder Crest Nicholson (LON:CRST), to boost its dividend by two-thirds by 2018.

Almost a third of the 50 firms are made up of travel & leisure and personal & household goods companies.

Together with industrial goods & services and food and drink companies, the four sectors make up more than half of the top 50 companies increasing their dividends.

Markit analyst Relte Stephen Schutte said: "Overall, payments by these 50 dividend champions are set to grow by £5bn in the coming three years to £12.1bn, 69% more than that paid in 2015."

Robust dividend growth

Other than Virgin Money (LON:VM.), which features in the top five dividend boosters, the only major bank expected to achieve robust dividend growth is Lloyds Banking Group (LON:LLOY).

Lloyds revealed a bumper £2bn dividend payment last week and is the largest payer on aggregate among the top 50, expected to pay £2.6bn in 2018.

However the top five names are expected to post above 65% growth by 2018.

Paddy Power Betfair (LON:PPB) is expected to grow dividends by almost 90% by 2018.

Following the merger between Paddy Power and Betfair, the company aims to drive dividend growth due to larger scale, complementary products and cost savings.

VM and Auto Trader (LON:AUTO) have recently initiated dividends at low levels, which enable them to quickly raise payouts.

VM is also benefiting from good earnings momentum and capital ratios currently above peers.

Fifth fastest dividend grower and benefiting from continued strength in the demand for housing in the UK is Crest Nicholson, which joins two other homebuilders expected to grow dividend payments; Galliford Try (LON:GFRD) and Redrow (LON:RDW).

Crest Nicholson is expected to see dividends increase by over 20% annually, rising 64% by 2018.



Stronger gold prices

Fresnillo has six operating silver and gold mines, two development projects and four advanced exploration prospects, as well as a number of other long-term exploration prospects in Mexico.

On Tuesday, the company reported a 3.5% fall in pre-tax earnings before interest, depreciation and amortisation to US$547.5mln on a 2.5% rise in adjusted revenue to about US$1.6bn.

The falls came despite a 4.4% rise in silver production to 46,977kOz and a 27.8% increase in gold production to 761,712 ounces.

Shares in Fresnillo fell 64,p, or 6.4%, to 936p in mid-afternoon trading in London.

The group said global economic uncertainty and weaker precious metal prices clearly impacted its financial performance, although higher volumes offset that.

It also reduced 2015 capital spending and exploration spend from budgeted levels and plans to do similar in 2016, delaying some investments whilst favouring those which speed up cashflow generation.

The group recommended a final dividend of 3.35 US cents per ordinary share, in addition to the interim dividend of 2.1 cents per share, against a final dividend of 3.0 US cents per share a year ago.

Markit said the company was beginning to increase its dividend off a low base, supported by stronger gold prices and a positive production report in January.

Shutte said: "This has seen the share price rally 55% and short sellers have continued to cover positions."


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Fresnillo Timeline

August 04 2015

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