Should You Buy Big-Yielders Centrica PLC, Berendsen PLC & Close Brothers Group plc?

Royston Wild looks at the investment case for payout plays Centrica PLC (LON: CNA), Berendsen PLC (LON: BRSN) and Close Brothers Group plc (LON: CBG).

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Today I am looking at the dividend prospects of three FTSE giants.

Centrica

I believe investment in energy giant Centrica (LSE: CNA) is perilous business for a multitude of reasons. The emergence of promotion-heavy independent suppliers is steadily dragging the firm’s subscriber base lower. On top of this, the threat of potentially-draconian action from Ofgem remains on the table, with negative comments by the Competition and Markets Authority over charging practices doing the so-called ‘Big Six’ no favours.

If problems at British Gas were not headache enough, Centrica also faces enduring stress at its Centrica Energy upstream division as crude prices drag. The Brent price continues to languish around multi-year lows at $43 per barrel, and the relentless stream of poor demand data and bubbly supply numbers looks set to send crude prices even lower in my opinion.

These pressures already forced Centrica to slash the dividend from 17p per share in 2013 to 13.5p last year, and a further reduction — to 12p — is forecast for 2015. A consequent yield of 5.8% may still be hard to overlook, however, but an anticipated 7% earning slide leaves the proposed payout covered just 1.5 times.

And with the business carrying £4.9bn worth of net debt, I reckon dividend estimates for the near-term and beyond are in danger of disappointing.

Berendsen

Laundry service provider Berendsen (LSE: BRSN) greeted the market with a bubbly trading update in Thursday trade, and the stock was recently 2.7% higher from the previous close. The London firm advised that both underlying revenues and operating profit had ticked higher from the first half, adding that these sales were up 3% in July-October from the same 2014 period while operating profit was described as being “well ahead.”

The City expects significant foreign exchange headwinds to break Berendsen’s strong growth story in 2015, but this is likely to prove a temporary blip as it grabs market share and operational restructuring clicks through the gears.

With cash flows also heading through the roof, Berendsen is anticipated to raise last year’s dividend of 30p per share to 31.4p in 2015, and again to 32.9p in 2016, producing chunky yields of 3.1% and 3.3% correspondingly. And investors can take confidence in weighty dividend cover bang on the safety watermark of 2 times for these years.

Close Brothers Group

Financial services specialists Close Brothers (LSE: CBG) have not enjoyed a bump higher on Thursday, however, and the stock was recently 1.5% lower on the day. The company advised that “market conditions in the first quarter have been challenging,” with client assets at its Asset Management arm dipping to £10.6bn at the end of October from £10.8bn four months earlier.

Still, Close Brothers is expected to keep its rude earnings record rocking in the medium-term at least, and the number crunchers have pencilled in a 4% earnings rise for the 12 months to July 2016. And this is expected to prompt the firm to lift the dividend from 53.7p per share in fiscal 2015 to 57.2p in the current period, creating a chunky 3.8% yield.

Close Brothers advised that “despite a slower start, we remain confident in delivering a satisfactory outcome for the year.” There are certainly opportunities for the business looking ahead, particularly at its Banking arm, but performance could come under further pressure should investor sentiment sour and price competition intensify.

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.

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

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