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3 Dividend Stocks On Dodgy Footing: BP plc, Glencore PLC And United Utilities Group PLC

Today I am looking at three dividend darlings that could be poised to disappoint.

BP

Fossil fuel giant BP (LSE: BP) (NYSE: BP.US) has long been a magnet for those seeking reliable, year-on-year dividend growth.

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But with output from OPEC, Russia and the US continuing to spew forth, and an insipid global economy failing to hoover up the excess material, the number crunchers have become more pessimistic. As a consequence City consensus suggests that BP will keep the total dividend locked around 39.5 US cents per share through to the end of 2016.

However, these projections come against predicted earnings rises of 10% and 51% for 2015 and 2016 respectively, a situation which I believe is unlikely given current market conditions. And BP’s decision to slash capital expenditure — the firm has already elected to cut its target to $20bn from the $24bn-$26bn planned previously — illustrates the company’s desire to maintain a strong balance sheet, a policy which could harm the dividend should revenues lag.

A yield of 5.5% through to the close of next year may be tempting for many investors, but in my opinion dividend chasers could be in for a rude awakening should oil prices remain in the doldrums, BP’s upstream operations disappoint, and the financial penalties related to the Deepwater Horizon spill bash the business.

Glencore

I reckon that diversified mining, energy and agriculture play Glencore (LSE: GLEN) could also see dividends come under pressure as worsening supply/demand dynamics bite the bottom line. Still, like BP, the number crunchers are in broad agreement that the company should continue to dole out above-average yields, with readings of 4.2% and 4.4% pencilled in for 2015 and 2016 correspondingly.

However, I believe income hunters should give take these forecasts with a pinch of salt. Brokers expect the business to lift the payout from 18 US cents per share to 18.1 cents this year, underpinned by a chunky 14% earnings rise. And a further 54% leap in 2016 is expected to drive the dividend to 19.1 cents next year.

It is true that production ramp-ups, combined with the fruits of extensive restructuring — the company elected to divest its 23.9% stake in Lonmin just in February — should help Glencore to mitigate prolonged turnover troubles. But given that weak commodity markets have caused earnings to dip at the mining giant in each of the past three years, in my opinion it is hard to envisage the company staging any sort of meaningful earnings improvement any time soon, a worrying omen for future payout growth.

United Utilities Group

The country’s power and water providers have long been havens for those seeking reliable dividend expansion, the defensive nature of their businesses helping to underpin bountiful shareholder rewards. But more recently the likes of United Utilities (LSE: UU) have come under increased regulatory pressure to keep the lid on tariff hikes, and in December OFWAT announced new plans to curtail the return water suppliers can make from customers.

As a result, the City expects earnings to dip 10% and 3% in the years concluding March 2016 and 2017 respectively. Still, the business is expected to continue lifting the dividend throughout this period, and an estimated payment of 37.7p per share for last year is anticipated to advance to 38.3p in 2016 and again to 39.4p next year. Consequently a bubbling yield of 3.9% for the current year edges to 4% for 2017.

But with United Utilities also having to fork out a fortune to keep its pipes and pumps in working order, and the firm creaking under a massive debt pile — net debt clocked in at £5.7bn as of November — the supplier may struggle to keep its progressive policy chugging along.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.