Are super dividends at Royal Dutch Shell plc, HSBC Holdings plc & SSE plc secure?

Will Royal Dutch Shell plc (LON: RDSB), HSBC Holdings plc (LON: HSBSA) and SSE plc (LON: SSE) really hand over the cash?

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What’s the best thing to see investors through good times and bad? Dividends, of course! But we don’t just want big ones, we want reliable ones too. Today I’m examining three.

Strengthening oil

Shares in Royal Dutch Shell (LSE; RDSB) have picked up 32% since 20 January, yet even after that the predicted dividend for the year to December would still yield a massive 7.7%. Trouble is, it would be little more than half covered by earnings, and in usual times that could suggest a high risk that it wouldn’t actually happen. But these aren’t usual times.

Shell’s earnings are expected to bounce back in 2017, and the mooted dividend for that year would be just-about-covered. Shell also has plenty of cash to maintain its dividend during the oil downturn, and the recovery to above $50 is increasingly suggesting the long-awaited strengthening is on the way. In fact, Bob Dudley at BP reckoned at the start of the downturn that we could see cheap oil for two or three years, and it looks like he’s turning out to be right.

BP has also committed itself to keep its dividend going in the short term, and all the signs are suggesting Shell is likely to do the same.

Risky bank?

I wish I could be as confident about the 7.6% yield currently on the cards from HSBC Holdings (LSE: HSBA), but with forecast earnings for this year suggesting cover of just 1.2 times, rising only to 1.3 times based on 2017 predictions, I see it as risky.

Yet the tide could be turning for HSBC. It’s suffered from escalating operating costs in recent years, but they’re coming under control and we should see improved cost-cutting over the coming year.

Then there’s China, of course, and HSBC’s massive exposure to that economy. But the latest oil demand figures from China were encouraging, and it seems increasingly likely the slowdown won’t be as deep or as long as many had feared. And in the longer term, the future for China is surely bright — and there should be significant profits to be made there.

I do think there are better, and safer, bargains to be had in the banking sector — but with HSBC shares down 28% over 12 months to 450p, we could be close to the bottom.

The safest?

Then we come to the perennial cash cow that is SSE (LSE: SSE), and the 6% yields predicted for the electricity and gas supplier. The cash would only be covered around 1.3 times by earnings per share, but for a sector that enjoys high visibility in terms of costs and revenues, that looks plenty safe to me.

Competition from smaller suppliers is hotting up, but the dents in SSE’s customer numbers are actually relatively small. And though there’s a small fall in earnings forecast for the year to March 2017, the following year should see that reversed if the analysts have got it right.

SSE is one of the few companies whose business is almost entirely in the UK, and that makes it a nice safe investment in the event of a Leave result from the EU referendum. Very few other UK companies are likely to get off lightly. With SSE shares having lost 7% over the past 12 months to 1,539p, we’re looking at a forward P/E of 13-and-a-bit… and that seems cheap to me.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended BP, HSBC Holdings, and Royal Dutch Shell. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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