Today I am looking at the dividend prospects of two FTSE 100 heavyweights.
Cash machine
Fresh concerns over global banking system have dented investor appetite for Lloyds (LSE: LLOY) in recent weeks, the bank’s share value receding following a healthy spurt higher in February.
While Lloyds may not carry the considerable exposure to emerging regions or commodity markets like Santander, HSBC or Standard Chartered, the bank is not fraught with its own challenges for the months and years ahead.
Lloyds’ severe asset shedding in the wake of the last recession makes it solely dependent on the health of the UK economy, prompting investors to fret over signs of a cooling domestic output and of course the potential impact of a ‘leave‘ vote in June’s EU referendum.
Equally worrying for Lloyds is a likely acceleration in PPI-related claims ahead of a touted 2018 deadline. The bank has already stashed away £16bn to cover the costs of the scandal, making it far and away the banking segment’s worst culprit.
However, I believe the stock remains a hot selection for those seeking exceptional dividend flows from this year onwards. It is certainly true that Lloyds’ sole focus on the British high street is unlikely to generate exceptional revenues, and consequently there’s little prospect of exceptional earnings. But the firm’s less-risky operations provide security for those seeking reliable dividend expansion.
And while the final cost of previous misconduct is yet to be determined, I believe the fruits of Lloyds’ Simplification restructuring scheme should help to offset the possibility of further colossal penalties. Indeed, the bank’s CET1 ratio rose to a healthy 13.9% last year — excluding dividends — in spite of further PPI-related provisions.
In light of these factors, the City expects Lloyds to raise the dividend from 2.25p per share in 2015 to 4.3p this year, and again 5.2p in 2017. These figures generate exceptional yields of 6.4% and 7.6% respectively.
Dividends set to surge
I also reckon investors seeking reliable dividend growth year after year could do much worse than pick electricity giant National Grid (LSE: NG).
That’s not to say the company has not has been a ‘perfect’ income stock in recent years. National Grid was forced to cut the dividend in 2012 due to the colossal sums needed to keep the electricity network up and running. Still, I believe the essential nature of electricity demand provides National Grid with earnings visibility that most other companies can only dream of.
Indeed, many of Britain’s blue-chip stocks, from banks and miners through to engineers and oil producers, have been forced to ‘bin’ their progressive dividend policies in recent times amid rising revenues turbulence. And this trend that is expected to claim more victims in the months ahead as the global economy toils.
Sure, projected earnings growth at National Grid may not be enough to raise the pulse — the bottom line is expected to edge just 2% and 1% higher in the years to March 2017 and 2018 respectively. But the power play’s defensive operations makes it the ultimate ‘buy and forget’ stock, in my opinion.
The City expects National Grid to raise a projected dividend of 43.8p per share for fiscal 2016 to 44.8p in the current period, yielding a splendid 4.6%. And the yield moves to 4.7% for 2018 thanks to a predicted 4.7%.
