Prime minister Theresa May is on the verge of exiting Downing Street for the last time, at least in her role as Britain’s political leader. Her attempts to guide the country through the malaise of Brexit have proved a failure. But brace yourself. Things could be about to get even more turbulent.
We’re five months away from the current Brexit date of October 31 and a number of seismic scenarios remain very much in play. A leadership contest to find a new prime minister; fresh negotiations with the European Union on the terms of withdrawal; another Article 50 delay; a second referendum, or even a general election…
Particularly concerning for many investors, though, is the possible replacement of premier May with someone taking a harder line towards the European Union, an individual who may be prepared to pull the UK out of the continental trading bloc under no deal conditions.
Profits powering higher
I recently explained why utilities business SSE, despite the classically-defensive nature of its operations, may not in fact be a lifeboat in uncertain times like these. I believe that B&M European Value Retail (LSE: BME) might be a better investment as an economically-destructive Brexit looms over the UK.
While the rest of the UK retail sector is suffering from crimped consumer spending power and waning investor confidence, this FTSE 250 retailer is shrugging off these troubles thanks to the low cost of its colossal range of products. Sure, like-for-like revenues in its core UK marketplace may have clocked in at just 0.7% in the 12 months to March, but any sort of growth in the current climate is to be commended in this environment.
Besides, thanks to B&M’s efforts to expand its store network, profits are growing at a brilliant pace. Pre-tax profit rose 8.7% in fiscal 2019 to £249.4m, helped by a 17.1% improvement in headline revenues, and plans to deliver 50 new own-brand fascia stores in the current year — up from 44 last year — bodes well for the bottom line from this year onwards, too.
A lifeboat in troubled times
The rate at which both profits and cash are growing (cash generated from operations rose to £259.4m last year) means that B&M has remained a generous dividend grower, the firm upping the full-year payout for the period just passed by almost 6% to 7.6p per share.
It’s probably not a surprise to anyone that City analysts are expecting more chunky payout growth for the foreseeable future too. Payouts of 9.2p and 10.6p per share are estimated for this year and next, respectively, figures that yield a chunky 2.5% and 2.9%.
Of course there’s bigger near-term yields to be found, but in the context of Brexit not all of them are in good shape to keep growing profits and dividends like B&M.
If you’re fearful about how European Union withdrawal will affect your portfolio I believe this retail star is a great way to protect your wealth.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of B&M European Value. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019