Should you buy Barclays plc, J Sainsbury plc and Close Brothers Group plc for their dividends?

When investing for dividends, it pays to look beyond the headline yield and examine the prospects for future payouts.

There’s no doubt that in the current environment, dividend investing has become more complicated with many companies slashing their dividends to cut costs. The three stocks below all appear to pay a solid dividend, yet have contrasting prospects for the future.

Hero to villain

Barclays (LSE: BARC) is a stock that has gone from dividend hero to dividend villain.

After paying out 6.5p per share in dividends for 2015, the bank announced recently that it would be cutting its dividend for the next two years to 3p per share, in order to conserve capital and absorb losses from toxic assets.

A dividend payout of 3p per share takes the forecast yield to just 1.7% – well below the FTSE 100 average dividend and also below several of the other large UK banking stocks.

For those investors seeking yield, there are clearly better options available and this has been reflected in the fall in Barclays’ share price, with the stock down 20% this year already.

Changing landscape

For many years UK supermarkets were seen as core dividend holdings thanks to their stable earnings and high dividend payouts.

However the supermarket landscape has changed dramatically in recent years as German rivals Aldi and Lidl have aggressively captured market share, forcing the big supermarkets to cut their margins and reduce their dividend payouts.

After strong dividend growth over the last decade, J Sainsbury (LSE: SBRY) cut its dividend for FY2015 down to 13.2p from 17.3p the year before. And after a further cut recently, the supermarket announced that it will only pay out 12.1p this year.

Is J Sainsbury worth a look from a dividend investing perspective? While a payout of 12.1p results in a tempting dividend yield of 4.6%, bear in mind that City analysts anticipate a further cut in the dividend next year to 11p.

One positive in relation to J Sainsbury is that dividend coverage stands at a healthy level of around 2, but payouts going forward will clearly depend on how the supermarket battle plays out.

Consistent payouts

In contrast to Barclays and J Sainsbury, Close Brothers Group (LSE: CBG) appears to be an under the radar dividend champion. Earnings per share at the bank have grown significantly over the last five years and shareholders have been rewarded handsomely with excellent dividend growth.

Dividends of 54p per share were paid out for FY2015, a yield of around 4.2%, and analysts expect payouts of 57p and 60p over the next two years. Furthermore, with dividend coverage of approximately 2.2, this dividend appears to be quite a safe payout.

Close Brothers Group released a positive trading update on Friday, with the bank revealing ‘robust’ demand for its specialist lending services. With its loan book and managed assets both increasing, the company said it was confident in delivering a satisfactory outcome for the full year. The market took the update well and and shares rose 4.6% on the day.

With an excellent track record of increasing dividend payouts and momentum at the bank picking up, Close Brothers Group looks like a dividend winner to me.

Of course, there are many other excellent companies in the UK with strong dividend prospects. 

And if dividends interest you, I'd highly recommend reading this report, A Top Income Share from The Motley Fool.

The stock in the report yields a very healthy 3.7% with a lot of potential for further growth.

Click here for your free report. 

Edward Sheldon owns share in J Sainsbury. The Motley Fool UK has recommended Barclays. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.