Today I am examining the dividend prospects of three FTSE 100 leviathans.
Running out of power
The utilities sector may still be a go-to destination for investors seeking abundant dividend flows. But I believe power suppliers like SSE (LSE: SSE) are finding themselves on increasingly-precarious footing as revenues pressures rise.
The country’s ‘Big Six’ suppliers breathed a sigh of relief last month after the Competition and Markets Authority (CMA) failed to recommend the draconian action that many had been fearing, from regulating margins on standard tariffs right through to break-ups of the biggest suppliers.
Still, the CMA’s proposals of price controls on pre-payment meters — as well as introducing a customer database for those on standard tariffs to improve competition — puts extra strain on power providers’ retail operations. The rise of the independent suppliers is already smacking SSE’s client base, the number of accounts on its books falling 5% to 8.28 million in the year to December.
The City expects these pressures to weigh on dividend growth in the medium term. Sure, SSE’s dividend is anticipated to rise from 88.4p per share last year to 89.9p in the period to March 2016. But payments are expected to be held around this level in the following period as the retail division struggles, and high capital outflows heaps additional pressure on the balance sheet.
A 6.1% yield may be tempting, but I believe dividends could severely disappoint from this year onwards.
A financial favourite
Concerns over economic cooling in emerging regions has weighed heavily on Jupiter Fund Management’s (LSE: JUP) stock price in recent months, but I believe the market may be missing a trick here.
Indeed, Jupiter Fund Management has managed to survive the worst of these problems, thanks in no small part to its dominance of the UK retail market.
The company saw total assets under management surge 12% in 2015, to £35.7bn. And the company is banking on new fund rollouts, like its Asian Income Fund and an international version of its strong Absolute Return Fund, to keep inflows rising.
Jupiter Fund Management is expected to slice the dividend this year to reflect near-term turbulence, to 23.3p per share from 25.5p in 2015. But this figure still yields a market-busting 6% yield.
And dividends are expected to get marching higher again from next year as earnings canter higher. A payout of 25.3p is currently predicted for 2017, producing a meaty 6.5% yield, and I expect these figures to keep growing as revenues gather steam.
Medical miracle
Drugs mammoth GlaxoSmithKline (LSE: GSK) has long proved a lucrative pick for those seeking delicious dividend yields.
The crushing impact of patent expirations has played havoc with the Brentford firm’s bottom line in recent times. But GlaxoSmithKline has injected vast sums into R&D to offset these problems and get earnings moving higher again, work which the business expects to produce 40 major product submissions during the next decade.
And in the meantime, GlaxoSmithKline is undergoing vast cost-cutting measures to shore up the balance sheet — the pharma giant confirmed last week that it remains on track to achieve £3bn worth of annual cost savings by the close of 2017.
GlaxoSmithKline has vowed to shell out dividends of 80p per share through to the close of next year, figures which the City believes are fully achievable and which create a smashing yield of 5.8%.
Given GlaxoSmithKline’s improving sales outlook and efficiency-boosting measures, I believe the medical play is a solid dividend pick for the near-term and beyond.
