The time has come for me to become interested in Reckitt (LSE: RKT) shares again.
I’ve wanted to love the company for ages because it resides in an attractive sector. Fast-moving consumer goods dangle the carrot of potentially steady cash flows and dividends for a business. And if there’s a bit of annual growth on top and a rising dividend, brilliant.
But over the past few years, Reckitt has endured a few operational problems that have been well-reported.
And the outcome has been a business trying to turn itself around, and a consolidating share price.
But the good news is that Reckitt didn’t cut its dividend over the past few years – not even through the pandemic. And I think that demonstrates the defensive strength of the business and its cash-generating potential.
The dividend is rising
The even better news is the directors increased the interim dividend by 5% and announced it in the first-half report delivered on 26 July.
City analysts expect mid-single-digit percentage increases in the total yearly dividends for 2023 and 2024. And those anticipated rises signal that dividend growth is gaining some traction after being flat during 2020 and 2021.
Meanwhile, with the share price near 5,798p, the forward-looking yield for 2024 is running at just above 3.4%. And, for me, that’s attractive.
I’d describe the first-half results report as steady rather than spectacular. Although its does tilt towards suggesting growth may be returning to the business, and that’s encouraging.
Revenue came in a bit higher and profits were down a bit. But looking ahead, the directors said they are sticking to a like-for-like revenue target of a 3-5% increase for the whole of 2023. And they now expect adjusted operating margins to be slightly above 2022 levels.
New blood at the top
Outgoing chief executive Nicandro Durante said there’s been strong first-half performance across the business units. And that reflects continued delivery from the investments the company made in Research & Development (R&D) and innovation.
He pointed to brands such as Finish, Air Wick, Lysol, Mucinex and Durex that have all benefitted from the programme.
And he also said the strong first-half performance gives the directors confidence in the company’s full year targets. That’s despite some tough comparatives in the over-the-counter (OTC) medicines portfolio. And it’s also despite expectations of a tougher competitive environment in the US nutrition category for the second half of the year.
Durante is currently training up incoming new chief executive Kris Licht. And Licht will take full control of the company by the end of 2023.
I reckon that’s an impressive handover strategy, adding to Reckitt’s steady-as-she-goes credentials. And it’s almost always a situation charged with positive potential when new blood comes into the top of an organisation. Hopefully, we will see new energy and ideas to further drive Reckitt’s growth and recovery from where the business is now.
Durante reckons the business has strong momentum right now but with opportunities to improve still further. And we’ve seen in recent years that Reckitt has the potential to struggle at times.
Positive outcomes are never certain with any business. But I’m optimistic and would give Reckitt shares serious consideration right now.
This post was originally published on Motley Fool
