Forecast: in 12 months the Marks & Spencer share price and dividend could turn £10k into…

The stunning Marks & Spencer (LSE:MKS) share price resurgence sadly passed me by. The stock dropped off my radar when it slipped into the FTSE 250, and by the time I clocked it was rocketing back into the FTSE 100, it felt I’d already missed the best bit.

I like to back recovery stocks, but only when they’ve still got something to prove. The biggest gains tend to come early. Yet Marks & Spencer flew even higher than I imagined. Over three years, the share price is up 145%. Over five, it’s up 230%. Finally, it’s cooled, climbing just 7% in the last year.

I used to cover the company in its darker days, and while I liked the food, the clothing floors felt lifeless and tired. The styles were dated and the layout gloomy. I chalked it up as another faded high street name, though not before filling a basket with edible goodies. But others looked beyond the racks.

FTSE 100 comeback

Marks & Spencer’s transformation has been steady and well-planned. In May, it reported its third straight year of growth. Adjusted profit before tax rose 22.2% to £875.5m, its highest in more than 15 years. Food sales climbed 8.7% to £9bn, and operating profit from fashion, home and beauty also improved, climbing 8.6% to £475.3m.

The balance sheet is strong, with £443.3m free cash flow from operations and £437.8m net funds excluding lease liabilities. CEO Stuart Machin put the progress down to strong cost control, growing market share, and smart investment across the board.

There were issues, of course, including a £248.5m impairment on its Ocado Retail stake. The group is still suffering from April’s massive cyberattack, which could wipe £300m off this year’s operating profit. Online fashion sales were paused in June and July, a serious knock.

Forecast income and growth

The damage may be a buying opportunity. Analysts have produced a median share price forecast of 427p, compared to 331.7p today. That’s a potential 12-month gain of 28.7%.

Dividends are now back. The expected yield this year is 0.99%, which would lift the total return to 29.69%. That would turn a £10,000 investment into £12,969, or an extra £2,969 in one year.

At a price-to-earnings ratio of 10.5, the shares don’t look too expensive either.

In truth, I still think I’ve missed the golden period here. Marks has made up a lot of lost ground. But from here, things could get trickier.

The cost of doing business in the UK is rising fast, thanks to higher minimum wages and employer National Insurance hikes. Consumer confidence is patchy, and food retailers are waging yet another price war. The shadow of the cyberattack lingers too, especially with online sales making up a growing slice of the total.

For those who believe in its turnaround story, this might still be a stock to consider buying. But I fear the excitement may ebb, and I’ll be exploring other FTSE 100 opportunities first.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.