Today I am looking at whether you should stash your cash in these four big-yield behemoths.
Anglo American
At first glance Anglo American (LSE: AAL) may be an attractive pick for those seeking brilliant investment returns. According to City forecasts the mining colossus is set to deliver a dividend of 85 US cents per share in both 2015 and 2016, matching the payouts seen in the past three periods. Consequently the business offers a market-beating yield of 5.4% through to the close of next year.
But I believe that these predictions may fall short of estimates, as severe supply/demand imbalances across its critical markets threaten a fourth successive earnings slide for this year and potentially beyond. With Anglo American also nursing a $12.9bn net debt pile as of the turn of 2015 — and prospective dividends covered just 1.2 times and 1.6 times for this year and next, well below the safety market of 2 times — I believe the metals play is a perilous pick for income seekers.
GlaxoSmithKline
Conversely, I believe that GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) is a strong dividend pick for the near term and stretching further ahead. The pharma giant announced plans last month to fork out an ordinary dividend of 80p per share through to the close of 2017, forecasts that carry a chunky yield of 5.4%.
Like Anglo American, GlaxoSmithKline boasts poor dividend cover for the next few years, with projected earnings of 81.9p for 2015 and 89.5p for next year barely exceeding expected dividends. But the Brentford firm remains a brilliant cash generator despite the effect of expiring patents on profits, and is also undertaking massive restructuring to bolster the balance sheet and cut the debt column still further. And with GlaxoSmithKline’s revitalised R&D department ready to drive revenues higher again from this year, I expect dividends to continue outperforming the wider market.
Telecom Plus
Shares in Telecom Plus (LSE: TEP) have gradually stepped lower in recent months as gas and electricity prices have headed steadily lower. However, the business is expected keep the likes of Centrica, SSE et al on the back foot by continually improving its tariff range — as illustrated by March’s new two-year tariff, part-funded by nPower — while Telecom Plus’ strategy of rewarding existing customers rather than courting new clients is also helping to maintain its consumer base.
As a consequence Telecom Plus is expected to see earnings tick comfortably higher through the next few years at least, driving a predicted dividend of 40p per share for the year concluding March 2015 to 46p in 2016 and to 52p the following year. Consequently the business boasts vast yields of 5.7% for this year and 6.4% for 2017.
Admiral Group
Although car insurance specialist Admiral (LSE: ADM) remains beset by intense competition, I believe that a gradual improvement in premiums should keep dividends bubbling along at above-average levels. This view is shared by the City, and the Swansea-based firm is expected to fork out rewards of 89.1p this year and 94.8p in 2016. As a result the insurer carries gigantic yields of 6% and 6.4% for these years.
While dividend coverage may be lacking over at Admiral — estimated payments are barely covered by earnings through to the end of next year — the firm is a terrific capital generator and saw cash and cash equivalents leap to £255.9m last year from £187.9m in 2013. With its operations on mainland Europe also pulling up trees, and Admiral boasting terrific customer retention rates, I believe the Cardiff firm should remain a lucrative payout pick.
