The last year has seen many dividends culled, with Antofagasta, Centrica, Glencore, WM Morrison, J Sainsbury, Standard Chartered and Tesco taking the knife to their payouts in 2015. Meanwile BHP Billiton, Rio Tinto and Rolls-Royce Holding have sacrificed theirs this year. Other payouts also look vulnerable as markets slow, but the following three dividends should survive 2016 intact.
On grid
National Grid (LSE: NG) has been my favourite utility play for some years and with total growth of 65% over five years and 10% over 12 months, it has given investors some much-needed ballast. Nothing is absolutely secure of course, and its share price has retreated slightly on recent reports that Government ministers may strip National Grid of its role as the UK’s power system operator.
The stock isn’t cheap either, trading at 16.46 times earnings, but you can’t complain about the yield at 4.50%. It’s solidly covered 1.5 times and brokers seem optimistic (if not ecstatic) about its prospects, expecting it to peg up to 4.60% by the end of March this year, then 4.70% in 2017 and 4.80% in 2018. Earnings per share growth forecasts of 1% a year for the next couple of years are similarly steady. UBS recently warned that National Grid’s US business was overvalued and short-term regulatory risks in the UK haven’t been priced-in, so growth may disappoint in future. But few are questioning the yield.
Not-such-snail-mail
Royal Mail (LSE: RMG) has steadied after all the excitement surrounding its launch, growing around 7.5% over the past year. Few will be complaining if it can continue to deliver on that. At the current yield of 4.6% you have a total annual return of around 12%. Healthy 6% year-on-year growth in its key parcels business is encouraging, as is double-digit revenue growth in European parcels. UK letters are in decline but at least the pace of the slowdown has been slower than expected. Royal Mail is also buoyed by a substantial portfolio of London property.
While the deliveries business will actively attract new competition – Amazon is my biggest concern – Royal Mail’s domestic domination allows it to invest more in technology and business efficiency. Growth prospects may be limited and a slowdown in the wider economy would certainly hurt, but at 10.7 times earnings the price may partly reflect that risk. Its dividend is nicely covered twice, and looks safer than most on the FTSE 100 today.
Setting Standards
Investors in insurance company Standard Life (LSE: SL) have endured a tough year, with the share price falling 17% in that time. That seems harsh given that this financially robust insurer enjoyed a pretty steady 2015, with fee-based revenue up 10% to £1.58bn and group underlying cash generation up 7% to £447m. It currently yields 5.7%, although the cover is worryingly low at just 0.7. Management has a good track record, however, increasing the dividend every year since floating in 2006.
Standard Life has moved away from being a traditional insurer to fee-based asset management, which leaves it vulnerable to short-term dips in market sentiment, while holding out stronger long-term growth prospects. This could be a lower-risk way to play the future stock market recovery. And while you wait, the yield suggests that Life is sweet.
