Key Highlights

  • Mears Group PLC (LSE:MER) offers a Dividend Yield of 6.78%.
  • The 2025 dividend rose 9% to 17.50 pence, and the 2026 Interim Dividend increased 11% to 6.20 pence.
  • The order book reached a record £4.2 billion at 30 June 2026, up from £3.3 billion a year earlier.
  • A further £20 million share buyback is in progress, adding to more than £100 million of Buybacks since 2023.

Company Overview

Mears Group PLC (LSE:MER) is a leading provider of housing services to the public and regulated sectors in the UK. Its work spans responsive repairs, planned maintenance and compliance for councils and housing associations, as well as housing management services, including accommodation and support under its contract with the Home Office.

The shares offer a dividend yield of 6.78%. That level is unusually high for a Business with a record order book and a progressive dividend, reflecting market caution about the future of asylum-related revenue.

Dividend Growth Record

Mears has delivered consistent dividend growth. For 2025, the board proposed a final dividend of 11.90 pence, up from 11.25 pence, taking the full-year total to 17.50 pence compared with 16.00 pence, a 9% increase. The board said this reflected increasing confidence in the outlook.

In August 2026, Mears declared an interim dividend of 6.20 pence, up 11% from 5.60 pence. It was paid on 1 October 2026 to shareholders on the register on 11 September 2026. The interim increase is faster than the prior year's growth rate, indicating continuing confidence despite lower first-half earnings.

Earnings and Payout Cover

Earnings provide good cover. In 2025, basic Earnings per share rose 11% to 55.70 pence and Diluted Earnings per Share were 53.86 pence, meaning the 17.50 pence dividend was covered around three times. Group Revenue for 2025 was £1,135.5 million and adjusted operating profit before IFRS 16 reached £64.8 million.

The first half of 2026 was softer. Revenue was broadly flat at £560.0 million, adjusted profit before tax fell 10% to £28.9 million and adjusted diluted earnings per share fell 9% to 25.26 pence. Even so, the interim dividend is covered roughly four times by first-half earnings.

Order Book and Contract Wins

The order book is the most important support for the long-term dividend. It reached a record £4.2 billion at 30 June 2026. Recent awards include a £240 million contract with Thurrock Council, a £200 million agreement with Moat Homes and a new £250 million, ten-year contract with Cross Keys Homes. Maintenance-led revenue grew 7% in the first half, and management targets annual growth of 5% to 9% in this area.

Cash Flow and Capital Returns

Mears combines dividends with buybacks. A new £20 million buyback was launched in April 2026, and since 2023 buybacks have reduced the share count by 30.3 million shares at a total cost exceeding £100 million. Average daily net cash fell to £29.7 million in the first half of 2026 from £67.7 million, reflecting buybacks, dividends and Working Capital movements. Operating cash conversion was 92%.

The company also completed the disposal of non-core facilities management activities for £18 million. Insider confidence has been visible too, with the chair purchasing shares after the half-year results at prices below levels seen earlier in the year. The combination of buybacks and a rising dividend means total cash returned to shareholders is substantial relative to the company's market value.

The Asylum Contract Question

The main uncertainty is revenue from the asylum accommodation and support contract with the Home Office. Revenue from these management-led activities has been declining as the government seeks to exit hotel accommodation and normalise volumes. Management-led revenue fell 14% in the first half of 2026. A replacement contract is currently estimated to begin in September 2029. Uncertainty over timing and profitability has weighed on the share price.

Risks

Beyond the asylum contract, risks include Margin pressure from contract start-up costs, local authority budget constraints and political changes affecting social housing spending. Lower average cash balances also reduce interest income.

Is the Dividend Sustainable?

The dividend at Mears Group PLC (LSE:MER) appears well supported. Earnings cover is high, the order book is at a record level and maintenance-led activities continue to grow. The decline in asylum-related revenue will reduce profits from their recent peak, but the Payout Ratio leaves ample headroom. The 6.78% yield looks sustainable, with the potential for continued growth if contract wins convert into profit.