Today I am looking at the income potential of four big dividend payers.
Grocery giant Sainsbury’s (LSE: SBRY) has traditionally been a stronghold for those seeking smashing income flows. Well, that was certainly the case until the rapid lift-off of discounters like Aldi and Lidl in the post-recessionary landscape, with shoppers demanding more bang for their buck and who remain unconvinced by the heavy discounting of the established chains.
Sainsbury’s has already had to take the hatchet to the dividend once thanks to massive earnings pressure, cutting the payment from 17.3p per share in the year to March 2014 to 13.2p in 2015. And a further reduction, to 10.7p, is predicted for the current period. Although this still yields a market-busting 4%, I believe the worsening sales outlook at Sainsbury’s — combined with its flaky balance sheet — should prompt savvy stock pickers to stay away.
Electricity provider SSE (LSE: SSE) has also suffered the wrath of intensifying competition on the bottom line. Like the rest of the so-called ‘Big Six’, SSE continues to see its subscriber base tick steadily lower as consumer appetite for ‘tariff switching’ picks up, and the business lost an extra 90,000 customers in the second quarter alone.
The utilities space has long been a sanctuary for those seeking reliable dividend expansion thanks to its robust earnings visibility — who doesn’t need electricity, after all? But with customers leaving in their droves, and the regulatory landscape becoming increasingly challenging, I reckon dividends at SSE could come under pressure. An estimated payment of 90.3p per share for the year to March 2016 may be tempting thanks to the 5.7% yield, but I reckon risk-intolerant investors should give the firm short shrift.
I have long been bullish over the growth, and consequently income, prospects over at support services provider Carillion (LSE: CLLN) thanks to the strength of the British construction market. And my enthusiasm for the company is supported by its terrific track record of grinding out huge contracts — indeed, Carillion has won £1.7bn worth of business since June alone, and this month added another £80m contract with the Homes and Communities Agency for a regeneration deal in Leeds.
But I am becoming more cautious over Carillion’s outlook after UK construction data yesterday showed output dip 2.2% in July-September. I believe the business remains an attractive stock selection, helped in no small part to its exposure to the Middle East and North America, as well as a projected 18.1p per share dividend for 2015, yielding 5.6%. But investors should be on the lookout for signs of worsening conditions in Carillion’s markets.
Diversified utilities play Telecom Plus (LSE: TEP) — which bundles services across the electricity, gas, broadband and telephone — thrilled investors in the summer with news that pre-tax profit leapt 21.3% in the 12 months to March 2015, to £42.1m, as its subscriber base galloped forth.
However, Telecom Plus — which sells its services under the Utility Warehouse banner — advised that the trading environment is becoming ever more difficult thanks to the über-aggressive pricing strategies of new energy suppliers.
The business assuaged these concerns in August after advising that it remains on track to meet full profit estimates for the year to March 2016, and consequently a dividend of 46p per share, yielding 4.2% at current share prices. For the moment I believe Telecom Plus’ solid momentum makes it an attractive FTSE selection, although investors should be wary of the progress of its sector rivals.
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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.