H&M may cut dividend next year as it struggles to attract shoppers

H&M will probably cut its dividend for the first time next year as the Swedish clothing retailer struggles to attract shoppers to its stores.

The company is expected to reduce its dividend 7.5 per cent for fiscal 2018, according to the average estimate of 27 analysts surveyed by Bloomberg. That would be the first cut since HandM shares began trading in 1974.

While H&M managed to maintain the dividend at 9.75 kronor in recent years, a lower payment may be inevitable. The Stockholm-based company is struggling to keep up with the shift to online shopping, rising inventory levels and fierce competition from rivals such as Inditex's Zara chain and Amazon. com, according to analysts.

Only one analyst expects an increased payout for 2018, while 10 foresee a cut and 16 expect an unchanged dividend. Credit Suisse analyst Simon Irwin forecasts a 30 per cent reduction.

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"We will come back about the next proposed dividend in due time," Nils Vinge, head of investor relations, said by email.

H&M’s dividend policy is to distribute at least about half of its profit after taxes to shareholders. By maintaining the dividend this year, H&M paid out almost all of its profit from last year.

As H&M increases spending on its online platform, it may not have enough cash from operations to maintain such payout levels. Plus, analysts expect the company’s profit to drop about 10 per cent this year.

The company’s return on invested capital is down 38 percent from the first quarter of 2016 and at the lowest level in 16 years, while its debt level is at a historic high. – Bloomberg