We’re in weird times for FTSE 100 dividends, with some pretty high potential yields that people just aren’t rushing for — often with very good reason.
Look at Rio Tinto (LSE: RIO) for example. Like the rest of the mining sector its shares have been battered by the commodities slump and have lost 41% in the past 12 months, to 1,761p. Profits are plunging too, with the firm expected to report a fall in earnings per share (EPS) for 2015 of close to 50% — and analysts are forecasting a further 15% drop in 2016.
But despite a need for financial discipline in such tough times, Rio upped its first-half dividend by 12%, and is expected to pay a 7.1% yield for the year just ended — and on top of that, forecasts suggest 7.3% for 2016!
And at the same time as handing over these levels of cash, Rio is also engaged in a $2bn share buyback programme, while competitor Glencore is slashing its dividend and is raising cash. Is this a demonstration of supreme confidence in Rio’s future, or is it madness? The world’s turned upside down, I tell you.
Invest in Asia?
Shares in Aberdeen Asset Management (LSE: ADN) have shed 51% since April’s peak, to 250p, as fears over its focus on Asian markets have led to net ouflows from funds under management of £34bn in the year to September 2015. But the firm upped its dividend by 8.3% to 19.5p per share, from 18p a year previously, as part of its progressive dividend policy.
Whether that progressive policy can continue into 2016 is open to question, and while analysts are forecasting a rise to 19.8p to yield 6.5%, that would be less than 1.2 times covered by earnings if EPS falls by the predicted 24% this year. I like progressive dividends, but in the face of falling earnings some caution is called for, and I reckon investors should definitely not consider rises in Aberdeen’s dividend over the next few years as a given.
Electric dividends
Utilities companies are pretty much a byword for steady dividends these days, and SSE (LSE: SSE) is no exception. The energy supplier has been serving up yields of close to 6% for years, and at interim report time in November, chairman Richard Gillingwater told us that “this business is well-placed to continue to deliver annual dividend growth of at least RPI inflation“.
The SSE share price has actually dipped 7% over 12 months to 1,483p, and that’s helped push the prospective dividend yield as high as 6.3% for the year to March 2016, followed by 6.4% a year later. Remember not that long ago when Ed Miliband was threatening to clamp down on energy suppliers? Ed who?
The energy companies continue to be great long-term dividend providers, and they will surely form the cornerstones of many an income portfolio for years to come.
