Following its demerger from Tarmac Group in 1999, Carillion has given its shareholders fantastic returns year after year. Perhaps the best example of this is its dividend, which grew every single year, going from 2.7p in 1999 to 18.4p in 2016. That’s equivalent to a growth rate of 12% per year, every year, for 17 years.
But now that growth has come to an end, and that’s putting it mildly. Following a recent negative trading update, the company suspended its dividend and the share price collapsed by more than 70% in one day. So what went wrong? How does a seemingly successful company go from hero to zero in such a dramatic and rapid fashion and, perhaps more importantly, how can we avoid owning companies like Carillion just before they blow up?
Let’s start by looking at the company’s business model….