Are Aviva plc, Berkeley Group Holdings plc and British Land Company plc about to slash their dividends?

Should you avoid these 3 dividend stocks? Aviva plc (LON: AV), Berkeley Group Holdings plc (LON: BKG) and British Land Company plc (LON: BLND)

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Generous dividends

With the UK property market viewed as overvalued by some commentators, it is perhaps of little surprise that shares in housebuilder Berkeley (LSE: BKG) have fallen of late. In fact, they are down by 20% since the turn of the year and, with the company focused on the prime segment of house building, there are concerns that the macroeconomic outlook of the UK may send prices downwards.

If this were to happen, it would clearly be bad news for Berkeley. Demand for properties could dry up and it could hurt the company’s bottom line. However, this may not lead to a fall in Berkeley’s dividends, since they seem to be extremely well-covered at the present time.

For example, Berkeley expects to pay out £2 per share in dividends every year for the next five years, as part of its capital return programme. While that is generous and equates to an annual yield of around 6.8%, dividends are expected to be covered around twice by profits in each of the next two years. This means that even if profitability comes under pressure due to a fall in house prices, Berkeley should still be able to easily afford to deliver on its dividend guidance.

Very bright prospects

Similarly, British Land (LSE: BLND) also appears to be a sound long term income stock. Like Berkeley, it is subject to the ups and downs of investor sentiment towards the UK property market, but unlike Berkeley it is perhaps more focused on the retail outlook, since its customers are essentially retailers.

Although the near-term outlook for retailers may be somewhat uncertain, the reality is that interest rates are likely to remain low over the coming years. This should help to keep consumer confidence relatively buoyant and allow British Land’s occupants to generate sales growth and most importantly, pay rent and rent increases.

With British Land’s dividend currently being covered 1.2 times by profit, it seems to have sufficient headroom to make shareholder payouts at the current level even if profitability disappoints. And with its earnings set to rise by 8% this year, the dividend prospects for British Land appear to be very bright.

A dominant business

Also offering excellent dividend growth potential is Aviva (LSE: AV). Although some investors are uncertain about the combination with sector peer Friends Life, the merger seems to be moving along as planned, with synergies recorded as Aviva had previously anticipated. With the two companies joining forces it creates a dominant life insurance business which could post stunning earnings growth as well as rapid increases in shareholder payouts.

With Aviva currently yielding 5.4%, it has clear income appeal. However, when its payout ratio of just 51% is taken into account alongside its growth potential, the prospect of a rapidly rising dividend makes Aviva one of the most appealing income plays in the FTSE 100. Furthermore, a price to earnings (P/E) ratio of 9.4 indicates that there is upward rerating potential on offer, too.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of Aviva, Berkeley Group Holdings, and British Land Co. The Motley Fool UK has recommended Berkeley Group Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »