For many investors, jumbo dividend yields over at AstraZeneca (LSE: AZN) have lessened the pain of prolonged earnings troubles in recent times.
But the Cambridge firm’s bottom-line troubles are not quite over, however, and delayed investment to reinvent its product pipeline is expected to keep pushing earnings lower until 2017 at the earliest. A failure to innovate spells disaster at the best of times, particularly when pressured by patent losses on existing products.
Still, AstraZeneca has not failed investors in the dividend stakes, with the company managing to keep the dividend locked around 280 US cents per share for years now, thanks to its robust balance sheet. And rewards are expected to remain around this level this year and next, according to City consensus, creating a bumper yield of 4.7%.
And I expect dividends to chug higher beyond this period, as successful R&D work brings on the next generation of revenue drivers, and rising global healthcare investment bolsters drugs demand.
Under pressure
I am not so optimistic concerning the payout prospects of oil-related stocks like Petrofac (LSE: PFC), however.
Sure, the global bias of the fossil fuel sector significantly reduces the impact of ‘Brexit’ on their operations. But the knock-on effect of last week’s referendum could play havoc with global growth, and with it oil consumption.
This could have significant ramifications for the price of black gold, and with it the capex budgets of oil producers large and small. Consequently, demand for Petrofac’s services could find itself under severe pressure in the near-term and beyond as oilfield investment is put on hold.
The City expects Petrofac to keep the dividend frozen through to next year, too, at around 65.8 US cents per share. These projections produce a hefty 6.5% yield.
But the possibility of tanking global oil demand — allied with rising production from the US, Russia and OPEC — makes Petrofac a risk too far, in my opinion.
Housing giant
The housebuilding sector has been the biggest casualty in recent days. Taylor Wimpey (LSE: TW), for instance, was the FTSE 100’s biggest loser on Friday, the stock shedding almost a third of its value. And the firm has shed a further 17% in start-of-week business.
Investors are quite right to be concerned over the impact of Brexit on home prices. Just last week KPMG warned that house prices could sink by 5% outside London following the vote, and by even more inside the capital. And this is one of the more conservative forecasts.
Still, I believe that the homebuilding sector could prove a lucrative contrarian bet for brave investors. Britain still has a chronic shortage of housing stock, a factor that could keep earnings at the likes of Taylor Wimpey heading higher.
The risks facing the housing segment are arguably priced in now and Taylor Wimpey currently sports a 9.7% dividend yield for 2016 and 12.1% thanks to predicted dividends of 10.9p and 13.6p. I reckon this could mark a decent time to plough into the stock.
