Dividends could be under pressure this year at FTSE 250 firms Centamin (LSE: CEY), easyJet (LSE: EZJ) and Greene King (LSE: GNK). However, even in the face of potentially reduced payouts, I’d be happy to buy these three stocks. Let me explain why.
Down the mine
Gold miner Centamin owns a global Tier 1 mine in Egypt, and has a strong balance sheet, with cash of $332m and no debt. Its profits can be fairly volatile year to year, because they’re very much geared to the price of gold. The dividend also dances to a disjunct melody, as you can see in the summary of payouts for the last five years below.
|
Year |
2014 |
2015 |
2016 |
2017 |
2018 |
|
Dividend per share (US cents) |
2.86 |
2.94 |
15.5 |
12.5 |
5.5 |
City analysts are forecasting no advance in earnings or dividends for the current year, putting Centamin on a price-to-earnings (P/E) ratio of 25, with a dividend yield of 3.7%.
However, the price of gold (and Centamin’s shares) have rallied in recent weeks. With there being good reasons for the strengthening of gold to persist, I think we could see some upgrades to Centamin’s earnings and dividend forecasts.
Either way, though, I see the company as a good choice for investors seeking both some exposure to gold and an overall decent, if annually variable, income.
Down the runway
While Centamin’s profits are directly impacted by the price of gold, easyJet’s are indirectly impacted by the price of oil. This, together with other things outside the budget airline’s control (such as the weather), makes for variable annual profits — and dividends, as you can see below.
|
Year |
2014 |
2015 |
2016 |
2017 |
2018 |
|
Dividend per share (pence) |
45.4 |
55.2 |
53.8 |
40.9 |
58.6 |
City analysts are forecasting a hefty drop in earnings and dividends for the current year, with the latter pencilled in at 44p. At a share price of 865p, the forward P/E is 10.2, and the prospective dividend yield is 5.1%.
The valuation looks highly attractive to my eye. Brexit uncertainty and competition concerns are weighing on investor sentiment, but I’m expecting easyJet — helped by what it describes as its “sector leading balance sheet strength” — to prove resilient through this period, and deliver strong returns in due course for shares buyers at the current level.
Down the pub
In contrast to Centamin and easyJet, brewer and pubs group Greene King had long been cherished by investors for a steadily rising annual dividend. However, as you can see below, the sequence of increases stopped last year, with the board maintaining the payout at the same level as the prior year.
|
Year |
2014 |
2015 |
2016 |
2017 |
2018 |
|
Dividend per share (pence) |
28.40 |
29.75 |
32.05 |
33.20 |
33.20 |
City analysts are expecting no advance in earnings or dividends when Greene King releases its latest annual results on Thursday, giving a P/E of 9.2, and yield of 5.7% at a share price of 580p.
There’s been some speculation management could actually reduce the dividend this year, because the company carries quite a hefty debt burden. I’ve expressed concern about the debt before, but with the shares now trading significantly lower, the valuation is looking increasingly tempting in what I consider to be an attractive sector for investors.
