With the FTSE 100 on an erratic ride this year and very possibly set for more of the same in 2016, focusing on dividends can be a less stressful way to invest — and when the index dips, we can pick up even better yields.
I quite like the look of Tate & Lyle (LSE: TATE). The maker of sweeteners and other food products has been through a tough spell and has seen its share price lose 25% over the past two years, falling to 590p. We’ve had profit warnings, but we’ve seen concerted turnaround efforts which are starting to look good.
At the interim stage reported in November, Tate & Lyle announced an 18% rise in adjusted pre-tax profit and maintained its first half dividend at 8.2p per share. Chief executive Javed Ahmed said that, with the firm’s plans progressing well, “...we remain on track to deliver the guidance for the full year we set out in May, and for future growth“.
There is a further drop in reported EPS forecast this year, but the City expects to see growth starting to return next year. And those dividends are set to start creeping upwards again, with a yield of 4.6% this year perking up slightly to 4.7% next. Those are not massive dividends, but if we really are at the turnaround point that I think, you could be locking in some very nice future dividend rises.
BBA Aviation (LSE: BBA) has suffered from the engineering and aerospace fallout, and its shares are down 33% in 2015 so far, at 173p. Is it a dead duck or an oversold bargain? Very much the latter, I’d say. It’s not like anything has gone dramatically wrong with the firm; there’s just a modest 4% fall in EPS forecast for this year, which was reinforced by a 3% drop in group revenue reported in BBA’s latest trading update on 9 December. And then forecasts suggest a 14% rebound in 2016, dropping the stock’s P/E as low as 11.
But what about that dividend? Its expected to deliver a 4.5% yield this year, rising to 4.7% next — and in 2016 it should be almost twice covered by forecast earnings.
Chief executive Simon Pryce spoke of “strong momentum into 2016” and “significant growth investments made in recent years“, and he seems to me to be someone who’s reasonably conservative in his statements.
Then there’s Royal Dutch Shell (LSE: RDSB), which forecasts suggest could be offering a dividend yield of 7.7% this year and next — and that yield has been boosted by a 34% share price fall in 2015, to 1,480p. But Shell’s dividend is by no means a no-brainer. The obvious first problem is that it would not be covered for forecast earnings for this year. There’s a 40% drop in EPS expected, and it could be even worse than that as the oil price has continued to slide and has fallen below $40 a barrel.
But on the upside, Shell has plenty of cash available to pay uncovered dividends for a couple of years if it wants to — many are expecting a dividend cut, but I’d put the chances of getting the cash at better than 50/50.
And if you buy today, you’d be getting the shares at a price not seen since 2009. It’s a calculated risk, but I reckon there’s a decent chance it will come good.
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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended BBA Aviation. The Motley Fool UK has recommended Royal Dutch Shell. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.