The Motley Fool

3 Shares Yielding ~5% This Year: WM Morrison Supermarkets PLC, Vodafone Group plc & Barratt Developments Plc

Today I am running the rule over three FTSE giants expected to deliver market-busting yields in the coming year.


Shares in embattled supermarket giant Morrisons (LSE: MRW) have come back to earth in recent weeks after a lively start to the yea, and are now essentially flat for 2015. Poor Christmas trading figures released last month once again underlined the challenges the new chief executive faces to get customers flooding back through its doors.

The grocer is expected to report a seismic 51% earnings decline for the 12 months concluding January 2015, results for which are due on Thursday, March 12. Although the Bradford firm elected to raise the interim dividend 5% back in September, the effect of enduring turmoil at the checkout will prompt the company to keep the dividend locked at 13p per share for the full year, analysts say.

However, Morrisons is expected to accede to persistent top-line pressure and cut the dividend to 9.1p per share in the current year, driving the yield from 7% to an admittedly still-impressive 4.9%. And predictions of a further reduction in fiscal 2017, to 8.4p, slices the yield further to 4.6%.

Given Morrisons’ ongoing failure to counter the pace of the discounters and lack of clear growth levers — both the convenience store and online channels are becoming increasingly congested — I believe that the supermarket could see dividends fall short of current expectations.

Even though earnings are expected to improve 2% in 2016, the dividend is only covered 1.4 times, some way short of the safety benchmark of 2 times. And I believe forecasts of any near-term turnaround could be considered hopeful at best, a potentially-disastrous scenario for dividend seekers.

Vodafone Group

Like Morrisons, Vodafone (LSE: VOD) (NASDAQ: VOD.US) has also experienced top-line pressure in recent times owing competitiveness in its key markets. But while its blue-chip peer is likely to continue to flail amid chronic structural changes in the grocery market, Vodafone has numerous growth areas to call upon to drive earnings and dividends higher.

The company is currently engaged in a huge $19bn Project Spring organic investment programme to build its 3G and 4G networks across the globe, a critical strategy to turn around its problems in its established European operations. As well, these measures are also building Vodafone’s exposure to lucrative emerging regions. In addition, the mobile operator has also entered the white-hot ‘quad play’ market during the past year through its acquisition of continental heavyweights Kabel Deutschland and Ono.

Vodafone is expected to lift the dividend to 11.4p per share in the year concluding March 2015 from 11p the previous year, even though earnings are expected to shuttle 64% lower due to ballooning capital expenditure. Indeed, the company’s formidable cash-generative qualities have enabled it to keep increasing the dividend in recent years even as earnings have fluctuated wildly.

And a predicted 2% bottom-line bounce in fiscal 2016 should underpin a further payout hike to 11.7p, City analysts say, driving the yield to 5.1% from 4.9% this year. And I expect payouts to continue trekking higher as heavy investment in hot growth sectors pays off.

Barratt Developments

Fears of a slowdown in the housing market have done little to stem enthusiasm in Barratt (LSE: BDEV) in recent months, the construction play having risen 38% during the past six months and having shrugged off a temporary dip in January.The company announced last month that total completions surged 12.5% during July-December, to 6,971, while forward sales leapt 17.1% to £1.68bn. And Barratt plans to open another 90 sites for the second half of the fiscal year on the back of strident demand, it said, giving it the highest average number of developments for six years.

The number crunchers expect Barratt to rack up earnings expansion of 38% in the year concluding June 2015 on the back of these strong market conditions, and further growth of 18% is chalked for the following year. This bubbly outlook has enabled the housebuilder to continue rewarding its shareholders with special dividends, and the total payout is anticipated to rise to 22p per share this year from 10.3p in fiscal 2014.

These bumper rewards are expected to keep rolling, too, and the full-year payout for next year is forecasted to come in at 27p. Subsequently the yield rises from 4.6% for this year to a monster 5.6% in 2016. I fully anticipate dividends to keep ticking higher in the long term as Britain’s housing crunch intensifies.

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Royston Wild owns shares of Barratt Developments. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.