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Why I’m not buying FTSE 100 giants AstraZeneca plc and Barclays plc for their dividends

Image: Barclays. Fair use.

Today, I’m looking at two FTSE 100 shares that have been popular dividend stocks over the years. Right now, I’m not interested in buying either.

AstraZeneca

Healthcare giant AstraZeneca (LSE: AZN) made the headlines recently after it announced on the 27 July that results of its Mystic drug study showed a combination of two injectable immuno-therapies, Imfinzi (durvalumab) and tremelimumab, was no more effective than chemotherapy at treating stage IV lung cancer. The stock fell a significant 15% on the back of the news. The share price has now fallen around 22% since late June.  

While the decline in the share price has pushed AstraZeneca’s forward-looking yield up to a respectable 4.6%, there are several reasons I’m not interested in buying the company for its dividend at present.

The first is revenue growth. One of the key things that I look for when picking out dividend stocks is growth in the top line. That’s because, if revenue is rising, it’s considerably easier for a company to grow its profits and pay out an increasing dividend. In AstraZeneca’s case, revenue has been on the decline since FY2014, and City analysts expect a further drop in the top line of 6.5% this year.

Other things I look out for when assessing dividend stocks include a history of consistent dividend increases, and healthy dividend coverage of at least 1.5 times. However, AstraZeneca is forecast to cut its dividend by 23% this year, and even then, dividend coverage will still only be around 1.37 times.

So while I am bullish on the long-term prospects of the healthcare sector, I’m going to let AstraZeneca’s dividend slide for now, in the pursuit of more stable dividend opportunities in other areas of the market.

Barclays

Another stock I won’t be buying for its dividend is banking giant Barclays (LSE: BARC). While the company doesn’t look expensive on a forward-looking P/E ratio of just 11.6, its dividend prospects look rather underwhelming at present.

Barclays once offered a solid dividend yield, paying out 6.5p per share in FY2015. However, last year the bank slashed this by over half, and as a result the forward-looking yield is now just 1.4%.

As a rule, when investing in dividend stocks, I generally look for yields of around 3.5% or higher. It’s not rocket science to realise that the more cash investors receive in dividend payments, the more they have to reinvest and compound. If a company is growing its dividend at a phenomenal rate, I may be tempted to look at a yield closer to the 3% mark. However, anything lower than that doesn’t interest me. Barclays’ yield of 1.4% is therefore well below my threshold. 

Furthermore, future profitability at Barclays looks opaque, as the bank faces tight regulatory supervision and considerable competition from both established rivals and the challenger banks. With that in mind, I’d rather look at other sectors and companies for reliable dividend-paying stocks to add to my dividend growth portfolio. 

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Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has recommended AstraZeneca and Barclays. 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.