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One big yielder I’d buy, and one I’d sell, in March

Image: BP. Fair use.

Shares in Communisis (LSE: CMS) have received a hefty dose of rocket fuel of late, the stock touching 27-month peaks around 50p per share just last week after gaining 38% in value over the past 10 weeks alone.

Communisis a month ago announced “trading for the year ended in line with expectations.” The company was boosted by a new three-year contract inked with Sony Europe for providing a wide range of communications services.

Other notable contract wins include a mammoth deal with HMRC in December, and the City expects the firm’s growing international presence and digital delivery expertise to support a stream of fresh contract wins from 2017 onwards.

With costs also coming down across the business, Communisis is expected to follow a 13% earnings rise in 2016 with a 6% advance in the current period. And this is predicted to translate into increasingly-tantalising dividends.

For 2017 a payout of 2.5p per share is predicted, up from an estimated 2.4p for last year. And this period’s projection produces a chunky 5.2% dividend yield, trashing a 3.5% average for Britain’s big caps.

This year’s anticipated payment is also well protected by expected earnings, with coverage of 2.5 times sailing ahead of the safety watermark of 2 times. Furthermore, steadily-improving cash flows should also underpin sterling dividend growth, in my opinion.

On dangerous footing

I am not so enthusiastic about the long-term dividend outlook of BP (LSE: BP), however.

Signs of a prolonged supply glut continue to overshadow the oil market, industry data showing a steady rise in the US rig count and prompting analysts to hurriedly increase their Stateside supply forecasts for the near term and beyond. And this is taking the shine off OPEC’s decision to curb production during the first half of 2017.

This resurgent production appetite is helping US storage drums to remain handsomely stocked. Latest data from the EIA showed crude inventories up by a staggering 9.5m barrels last week, taking the total to a fresh record above 518m barrels. And demand is still too weak to suck up this excess material.

And the likelihood of the supply glut enduring long into the future casts a long pall over the profits, and consequently the dividend, outlook over at the likes of BP.

While the City currently expects BP’s dividend to remain on hold in 2017 at around 40 US cents per share, the oil giant’s ability to keep payouts above or around recent levels in the near term and beyond remains on shaky ground.

Indeed, this year’s expected dividend sails above predicted earnings of 36p per share, a figure dependent on soaring oil values. And BP’s enormous debt levels (net debt grew to $35.5bn in December from $27.2bn a year earlier) could seriously jeopardise the firm’s ability to shell out market-beating payouts, even as further capex cuts and asset sales filter through.

I reckon investors should give BP’s 7.2% yield short shrift.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended BP. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.