2 beaten-up dividend aristocrats: are they bargains?

Royston Wild runs the rule over two embattled FTSE 100 (INDEXFTSE: UKX) dividend stocks.

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It comes as little surprise that market appetite for Centrica (LSE: CNA) has slumped again in recent weeks.

The energy giant has seen its share price slip 8% during the past four weeks, mirroring worsening optimism for oil prices and taking the share to its cheapest since mid-December.

Hopes that OPEC’s supply curbs announced in November would balance the crude market at some point in 2017 are fast receding as US producers race to plug their rigs back into the ground. Just last Friday industry monitor Baker Hughes reported that new hardware additions rose for the ninth straight week, a huge 14-unit increase taking the total to 631 and to the highest since September 2015.

But this is not the only reason to fear for profits at the Centrica Energy production division and the US is not the only country to plough vast sums into boosting fossil fuel output. And signs that the OPEC accord may be already unravelling are not exactly helping investor confidence, either.

On top of this, concerns over the future revenues outlook of British Gas are also rising as the likelihood of increasing inflation in the months ahead should drive more households into the arms of cheaper, independent, suppliers.

And while British Gas has, unlike the rest of the so-called Big Six, vowed to keep its standard tariffs locked until August to stop the steady fall in its customer base, such measures are unlikely to help the bottom line snap out of its tailspin.

The City certainly doesn’t think so, and expects Centrica to record a fractional earnings decline in 2017, the fourth successive annual fall if realised.

And this leaves hopes of a 12.5p per share dividend — up from 12p in 2016 — on very shaky ground in my opinion.

With the projected payout also covered just 1.3 times, well below the widely-regarded safety benchmark of two times, I reckon investors should steer clear of the firm, despite its market-topping 5.8% yield.

Bank in bother

The HSBC Holdings (LSE: HSBA) share price hasn’t had the best of it in recent times, either.

The banking giant’s value has fallen 7% since the firm’s patchy trading update in mid-February. It advised that profit before tax dived 62% in 2016, to $7.1bn, reflecting the write-off of the remaining goodwill at its Global Private Banking division in Europe; an accounting loss following its exit from Brazil; and investments to help the bank meet cost targets.

And stock pickers have taken none-too-kindly to warnings that “geopolitical developments, heightened trade barriers and regulatory uncertainty” could create hurdles in 2017.

Regardless, the Square Mile expects HSBC to explode back to earnings growth in 2017 following three years of pain. However, the possibility of rising turbulence in its key Asian markets puts such a prediction on an extremely dodgy footing, in my opinion.

So while HSBC’s balance sheet may be strong enough to realise a predicted dividend of 51 US cents per share in 2017, yielding an exceptional 6.2%, I reckon the company’s profits (and thus dividend outlook) look less assured further down the line.

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.

Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Centrica and HSBC Holdings. 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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