While supermarket giant Tesco has been setting tongues wagging with its better-than-expected numbers today, the picture over at Sainsbury’s (LSE: SBRY) hasn’t been as cheery of late.
Sainsbury’s announced last week that like-for-like sales dived 1.1% during the 16 weeks to 24 September, the grocer’s heavy investment in product lines still failing to slow the charge of the discounters. Indeed, the underlying sales decline was worse than the 0.8% fall endured in the prior quarter.
The company has been forced to cut the dividend not once but twice in recent years as profits have crumbled. And the number crunchers expect fresh earnings weakness — an 11% decline is pencilled-in for the period to March 2017 — to result in another payout cut, to 10.5p per share from 12.1p in fiscal 2016.
Yet this figure still yields a splendid 4.2%, sailing above the FTSE 100 average of 3.5%. And dividend coverage stands at a pretty-solid 1.9 times.
But I for one wouldn’t pile in to Sainsbury’s at the present time, as I reckon the rising competitive pressures in Britain’s grocery market could keep sending dividends at the retailer lower for some time to come.
Don’t bank on bumper deposits
Global banking giant HSBC (LSE: HSBA) has a whole host of problems to overcome to keep its progressive dividend policy on the straight and narrow.
Indeed, City consensus puts the full-year dividend for 2016 on hold at 51 US cents per share amid expectations of further bottom-line pressure — a 12% earnings drop is currently anticipated, a result that would mark a third successive slide.
Many investors may be tempted by a mammoth 6.7% dividend yield, but I believe HSBC may struggle to meet current projections. This week the bank paid its third interim dividend of 10 cents per share, leaving a final, meaty payment to be made.
However, slowing revenues growth may cause ‘The World’s Local Bank’ to hold fire on matching last year’s blowout Q4 reward. Adjusted pre-tax profit slumped 14% during January-June, to $10.8bn, as painful economic rebalancing in Asia damaged revenues in these key growth regions.
Investors will point to HSBC’s improving capital pile as reasons to be optimistic — this clocked in at 12.1% as of June, up from 11.9% at the start of the year — as well as the firm’s decision to launch a $2.5bn share buyback after divesting its Brazilian units.
But cost-cutting measures at the bank seem to be running out of steam, leading many to question whether HSBC can keep building the balance sheet. And with the bank also battling a litany of misconduct charges, I reckon dividends could come under severe pressure in the near term or beyond.
