An annual income of under 3% looks disappointing compared to the high-flying yields available on today’s FTSE 100. But the dividends paid by these three solid companies are a lot more robust as a result.
Telly Bashers
In a turbulent five years for the FTSE 100, Sky (LSE: SKY) has been a relative high flier, posting growth of 55% in that time, and with minimal turbulence along the way. I still remember the early years when a sceptical establishment sneered at Sky, but it has shrugged off their scorn to become an established part of everyday UK life. Although its Premier League coverage still grabs most of the attention, its movies, original drama, children’s offerings and broadband and mobile bundles give it tremendous reach into 10 million Britons’ homes. Sky Atlantic is now a firmly established brand.
Sky posted a 10% increase in operating profits in the third quarter and secured 937,000 new paid-for subscription products, including 133,000 new broadband subscribers. BT may be putting up a good fight but Sky is still the one to beat. It isn’t cheap at 20 times earnings and the yield is hardly compulsive viewing at 2.9%, covered 1.7 times, but as with its multi-channel offerings, you get what you pay for.
Money Men
If you can make money while all around people are losing it, then you know how it feels to be Schroders (LSE: SDRC). The UK-based asset management company posted a 21% rise in profit before tax to £438.9 million in the last nine months, up from £364.2 in 2014. It also generated £8.3bn of net new business, up from £7bn one year earlier. Assets under management rose £18.6bn to £294.8bn, a rise of 6.7%. Although this was achieved in tough trading conditions.
Despite these impressive numbers the Schroders share price has fallen in recent months, and at 2232p is well below its 52-week high of 2629p. One reason may be the underperformance of its wealth management arm, which suffered a drop in both sales and profits. Stock-market turbulence has been a bigger issue, with Schroders failing to recover since the shock of Black Monday.
I see this as a buying opportunity, despite the disappointing yield of 2.6%, comfortably covered 2.1 times. Earnings per share are forecast to rise 3% this year and 6% next, lifting the yield to a slightly more respectable 3.1%. If 2016 is a better year for stock markets, investors will be too busy watching the share price soar to worry about the lowly yield.
Pull The Lever
Unilever (LSE: ULVR) is another low yielder returning just 2.4%, covered 2.3 times, but ’twas ever thus. In a troubled world the household goods behemoth has cleaned up, growing 56% over the last five years, as its everyday brand names keep flying off the shelves all over the world.
Unilever’s proven model of “competitive, profitable, consistent and responsible growth” drove a 9.4% rise in turnover to €13.4bn in the third quarter. Underlying sales growth of 5.7% was even healthier in emerging markets at 8.4%, a positive pointer for the future. EPS are forecast to rise 15% this year but slow to 5% in 2016. Unilever isn’t cheap at 21.7 times earnings but then I’m not sure it ever will be.
