The JD Wetherspoon (LSE:JDW) share price is down around 10% since the start of the year. But for the first time since 2019, the company is about to pay a dividend.
There was plenty more for investors to like about its annual results on Friday (4 October). The business growing sales while reducing costs has been having a powerful effect on its bottom line.
Results
Like-for-like sales during the year ending in July 2024 climbed 7.6%. Across the board, results were strong, with bar revenues up 8.9%, food up 5.6%, and fruit machine turnover up 10.8%.
During the period, though, JD Wetherspoon reduced its pub count from 825 to 800, meaning the company now owns 72% of its venues. As a result, overall sales growth came in at 5.7%.
Importantly, fewer pubs means lower costs – and that resulted in a big increase in profitability. Operating profits climbed 30% and earnings per share went from 26.4p to 46.8p.
That means operating income is back above its pre-pandemic levels. And while net debt rose slightly, it only accounts for 2.58 times cash earnings – the lowest it has been in over a decade.
Dividends
None of this should have come as much of a surprise to shareholders. Throughout the year, it has been seeing sales growth while finding ways to reduce its expenses.
The story investors might not have seen coming though, is the news of the dividend. For the first time since 2019, JD Wetherspoon is going to start returning cash to shareholders again.
The company is picking up where it left off with a 19p per share distribution. But investors should note this was the full payout in 2019, whereas it’s just the return for the second half of 2024.
At today’s prices, that amounts to a dividend yield of 1.64%. That might not look like much, but I think it’s one of the clearest signs management believes the business is on the right track.
Risks
I think the company’s results for the year have been very impressive. But in his comments to shareholders, Chairman Tim Martin pointed out some important risks for the firm.
One is a reduction in licensing hours for pubs and the other is a change in unit sizes. Neither is inevitable, but each would be a challenge for the business, as well as the wider industry.
I take the risks of changes in regulation seriously. But I think Wetherspoon’s competitive position means it’s in a better position to respond to these than its competitors.
Even if market share shifts away from pubs, I think the company’s low prices should make it relatively resilient. That’s why reducing costs – as the firm continues to do – is so important.
Lower prices
Growing revenues while reducing costs is a powerful move for any business. Despite this, the shares are still down around 10% since the start of the year.
There will always be challenges, but I see the stock as a good investment for my Stocks and Shares ISA at a price-to-earnings (P/E) multiple of 15. And the latest results don’t change that.
