The importance of dividends to investors cant be understated. If youreinterested in income-producing, dividend-paying shares, you may be interested in the forthcoming results of an up-and-coming mid-cap dividend champion.
Looking forward to the end of June, we are expecting results Photo-Me International (LSE: PHTM) which is a highly cash generative company with net cash on the balance sheet of around 70m.
On 26February the company issued a trading update that said:
The much better than expected performance in Japan coupled with the year-to-date performance in the rest of the business where laundry continues to produce strong results -leads the Board to conclude that reported pre-tax profits for the year ending 30thApril 2016 will be in excess of 40 million. If the Japanese business continues its strong performance in the final quarter, the eventual outturn for the year is likely to be in excess of this updated projection.
So profits are likely to be in excess of current market expectations, but what really interests us is that the company recently said that it would pay excess cash over 50min the form of a special dividend in each of the next three years.
There is already an outstanding interim dividend payment that has been declared of 2.58p per share being paid on 12May and going ex-dividend on 7April.
Whilst the photo booth business is mature, the coin-operated laundry business is very exciting and could be a strong engine for growth in the coming years. That said, government initiatives in Japan and France lead us to believe that the photo business could also have good prospects.
Back to the special dividend
Assuming that cash at the year end is 70m the special dividend pot could amount to as much as 20m. That means shareholders can expect a special dividend of approximately 5p per share.
In addition, the board declared in its latest set of final results that it will increase its dividend by 10% in each of the next three years. This would result in total payouts of 5.37p for the current year, followed by 5.91p and 6.5p for the successive years.
With the shares currently at 178p, according to research from DividendMax, the implied dividend yield is approximately 6% from the special and the ordinary dividends very attractive indeed.
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Mark Riding owns shares in Photo-Me International. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.