Today I am looking at the dividend outlook of three FTSE giants.
Supplier on the slide
Thanks to rising pressure across both its upstream and downstream operations, I — like most of the City — am convinced that Centrica (LSE: CNA) will be forced to introduce fresh cuts to the full-year dividend.
The heat was turned up on the British Gas operator again just today after ‘Big Six’ rival SSE announced plans to cut gas charges by 5.3% after Easter. The move follows energy giant E.ON’s decision to cut its own prices by 5.1% late last week, leading many to speculate that Centrica will be forced to cut gas prices again following the reductions of last summer.
And, of course, enduring weakness in oil prices could also keep revenues hemmed in at the supplier’s Centrica Energy division. In recent days Brent values have slumped to levels not seen since 2003.
The number crunchers expect Centrica to reduce the dividend from 13.5p per share last year to around 12p in 2015. Such a figure creates a brilliant 5.7% yield, but with this payment covered just 1.5 times by predicted earnings — and Centrica nursing colossal debt levels — I believe shrewd investors should give this generous projection scant regard.
Publisher under pressure
Despite the steady progress of its restructuring plan, challenging trading conditions continue to trouble education publishers Pearson (LSE: PSON), forcing the business to issue yet another profit warning this month.
The London business advised that earnings should now punch in at 69p–70p in 2015, down from a projection of 70–75p made back in the autumn. Pearson advised that “the key cyclical and policy-related factors which have been hurting our markets for some years have yet to improve,” a situation that has forced the firm to take the hatchet to some 4,000 jobs — that’s 10% of its total workforce.
More promisingly, however, Pearson advised that it plans to raise the dividend from 51p per share last year to 52p in 2015. And the company vowed to keep rewards locked at this level “while it rebuilds cover, reflecting the board’s confidence in the medium term outlook,” a projection that creates a chunky 6.7% yield.
Although this decision puts paid to Pearson’s long-standing progressive dividend policy, the firm’s pledge provides some cause for cheer as chatter concerning a potential dividend cut have been increasingly doing the rounds.
But should Pearson’s expectations of “ongoing challenging conditions in our largest markets” in 2016 continue to drag, I believe investors should be prepared for a possible payout cut.
Terrible news for telecoms firm
The colossal cost of last year’s data hack at telecoms giant TalkTalk (LSE: TALK) was underlined again last week, following a worrying report from Kantar Worldpanel ComTech.
The research company announced that 7% of the company’s broadband subscription base moved to another provider between October and December, with a fifth of customers switching due to what they perceived as poor reliability.
Imran Choudhary, consumer insight director at the researcher, commented that “there can be no doubt that it lost potential customers following the major data hack,” adding that “if it’s to recover from recent events TalkTalk will need to offer more than just good value.”
This will come as a bitter pill for TalkTalk, which is already battling an increasingly-competitive marketplace dominated by industry giants BT and Sky.
The City expects TalkTalk to increase the dividend to 16p per share for the year to March 2016, from 13.8p last year, yielding a terrific 6.8%. But the payout is anticipated to reduce to 14.9p in fiscal 2017, signalling the prospect of intensifying revenues pressure.
In this difficult climate I believe TalkTalk could become an increasingly-risky dividend pick.
