As an old-school value investor, I love to watch my dividends come rolling in. Much of this cash comes from healthy FTSE 100 and FTSE 250 companies. That said, there are a few Footsie companies that aren’t in such rude health.
In some cases, falling revenues, earnings, and cash flows could put corporate cash payouts at risk. For instance, here are two British businesses whose dividends may come under threat in 2024/25:
1. Vodafone
My wife and I bought shares in telecoms giant Vodafone Group (LSE: VOD) in December 2022. Alas, they have fallen steeply ever since, pushing up this stock’s dividend yield into double-digit territory.
As I write, Vodafone’s share price stands at 63.48p, just 1.4% above its 52-week low of 62.59p, set on 12 February. The shares are down 32.8% over one year and have crashed 55.3% over five years. This values this business — once Europe’s largest listed company — at under £17.2bn.
Thanks to sustained price falls, Vodafone’s dividend yield has soared to 12.1% — the highest in the FTSE 100. History has taught me that such high cash yields rarely last. Either dividends get cut or share prices rise, both of which drive down yields.
What’s more, the group’s dividend has been frozen at $0.09 (7.15p) a share for the past four years, after being cut steeply in 2019. Also, CEO Margherita Della Valle has been in the job since April 2023, less than 10 months. Perhaps this relatively new broom will bite the bullet by cutting the dividend in her first year?
On a positive note, Vodafone’s UK revenues are set to be boosted by a round of inflation-plus price rises coming this spring. Also, the new CEO is slowly restructuring the group by selling off non-core businesses and forging new strategic partnerships.
Though I anticipate a cut to Vodafone’s dividend as more likely than not, I also regard this probability as being baked into the lowly share price. Therefore, we will hold onto our shares for now — at least until the full-year results arrive on 14 May.
2. abrdn
Vowel-starved investment manager abrdn (LSE: ABDN) was formerly known as Standard Life Aberdeen before its much-criticised rebrand in April 2021.
Frankly, very little has gone right for the group ever since. abrdn’s (still pronounced ‘Aberdeen’) profits are being ground down by two powerful trends. First, the rise of massive US money managers in the UK. Second, falling management fees due to passive funds gaining market share.
As a result, its shares have dived 24.9% over one year and 32.2% over five years. At present, they trade at 158.4p, valuing this once-mighty brand at a mere £2.9bn. These falls also saw the stock ejected from the elite FTSE 100 index.
As with Vodafone, abrdn’s falling share price has pushed up its dividend yield to 9.2% a year. But with the company cutting jobs, expenses and even Bloomberg terminals, how long before the dividend gets the chop?
Then again, the group is sensibly consolidating its fund stable in order to reduce costs and headcount. If these cost-cutting exercises succeed, then the dividend might be spared and the shares could rebound.
Finally, abrdn stock is on my watchlist, but I have yet to ‘push the button’ as I await its full-year results on 27 February!
