Today I am looking at whether investors should park their cash in these big dividend payers.
Banking giant HSBC’s (LSE: HSBA) (NYSE: HSBC.US) share price has endured a torrid time in recent times, the stock having shed some 12% during the past two months alone. And with little wonder: uncertainty surrounding the firm’s future domicile status, and regulatory action over the actions of its Swiss units, right through to concerns of a blowout on the Chinese stock market and a eurozone economic implosion, have all smacked investor confidence.
Still, for dividend-hungry investors I reckon now could be a great time to do some bargain hunting at The World’s Local Bank. The City expects HSBC’s progressive dividend policy to keep rolling during the medium-term at least, and a payout of 50 US cents per share last year is anticipated to rise to 51.2 cents in 2015 and 52.8 cents in 2016. Thanks to the aforementioned recent share price weakness these figures create monster yields of 5.8% and 6% correspondingly.
While solid growth in the bottom line is expected to underpin these projections, a strong capital pile should also buttress the dividend — HSBC’s common equity tier 1 capital ratio rung in at a decent 11.2% during as of the close of March. And in the long term I believe rising wealth levels in critical emerging markets — and positive effect on banking product demand — should keep driving payouts higher.
Tate & Lyle
However, I am not so bullish over the investment prospects over at sugar house Tate & Lyle (LSE: TATE). Despite the prospect of a third annual earnings dip in 2015, the City expects the business to keep the dividend locked at 28p per share. And expectations of a solid bottom-line uptick next year is expected to propel the payment to 28.6p.
Of course, subsequent yields of 5.5% for this year and 5.7% for 2016 warrant serious attention. But I believe the prospect of crippling deflation in the sucralose market — Tate & Lyle sources around 20% of total profits from this one area — puts serious pressure on the firm’s earnings and subsequently dividend outlook. And with payments covered just 1.2 times by earnings through to the end of next year, in my opinion investors should be prepared for forecasts missing their target.
Likewise, I believe that metals producer Evraz (LSE: EVR) is a stock not for the faint of heart as chronic oversupply in the steel industry crimps the balance sheet. The number crunchers currently expect the Russian firm to churn out dividends of 10.3 US cents this year and 12.6 cents in 2016, creating mammoth yields of 5.7% and 7.1% respectively.
But as Reuters reported last month, further deterioration in the steel price has forced Evraz to re-think its dividend policy. In addition, these pressures have also forced the business to put the kibosh on further share buybacks following April’s $375m cash return as a ‘challenging market‘ pressures the firm’s capital strength. With the steelmaker also fighting the impact of US and European sanctions on Russia, I reckon current payout estimates are likely to fall way, way short of estimates.
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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended HSBC Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.