Company in the news: Next

Next share price chartIn stark contrast to Debenhams, Next (LSE: NXT) continues to do really well. It did not start discounting items until Boxing Day, but managed to grow sales by nearly 12% on last year.

Sales from its retail stores grew by 7.7%, while its online Next Directory continues to be the star performer, with sales up by 21%.

Earnings per share for the year will have increased by nearly one quarter. Profits for next year are expected to increase at a more modest rate – between 3% and 7%.

Next is a rare example of a share buyback working well for shareholders. This is because it has had strict limits on the maximum price that it will pay for its own stock. By not paying too much it has turbocharged returns to investors.

Now it thinks that its shares are too expensive for a buyback to give a reasonable return, which is probably a good enough reason for private investors to hold back too. Instead, it will pay a special dividend of 50p per share. At £61.30, the shares look pricey on nearly 18 times forward earnings, so don’t expect the buybacks to resume any time soon.

But Next still expects to have £300m of surplus cash (equivalent to 193p per share) in 2014/2015, so expect more special dividends during the year. With an expected dividend of 167p for next year, this would give a total income payout of 360p per share or an income return of 5.9%. This prospect makes the shares a solid hold.

Verdict: hold