Morrisons extends hours but dividend outlook uncertain, says Shore Capital

18th Aug 2014 10:34

The decision by UK grocery chain Wm Morrison to extend its opening hours may help improve weak like-for-like (LFL) sales trends, but the future of its dividend remains uncertain, according to Shore Capital which kept a 'sell' rating on the stock on Monday.The broker said that "uncertainty and poor visibility" contribute to its cautious stance on Morrison's shares.Morrisons chief executive Dalton Philips has said that some shops will be open earlier and close later in an effort to meet the demands of "modern family life, flexible working hours and busy schedules". Some 230 of the group's 490 stores will open from 06:00 to 23:00, compared with previous opening hours of 08:00 to 22:00/23:00.Shore analysts Clive Black and Darren Shirley said that they are now "cautiously optimistic" about third-quarter LFL sales, but that longer hours will lead to higher operating costs.However as for the first-half results, which Morrisons reports on 11 September, LFL sales are expected to "remain very poor, somewhere around minus 6%", Black and Shirley said.As for the dividend, the analysts believe the market has expressed "low confidence" in the board's commitment of a 5% increase in the payout for the year to February 2015."We assert this because the dividend yield of Morrison's shares is now 8%, only partially covered by earnings per share at 0.8 times. Hence, the stock could materially re-bound if this pay-out rate can be sustained, or as feels more likely, there is a rebase coming down the line and the stock remains weak."The stock was broadly flat at 173.12p by 10:20 on Monday.BC