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Royal Dutch Shell plc, J Sainsbury plc and Centrica plc: the FTSE 100’s worst income stocks?

Today I’m looking at the payout potential of three FTSE 100 (INDEXFTSE: UKX) big-yielders.

Market mashed

Another update on the grocery industry by Kantar Worldpanel, another reason for established chains like Sainsbury’s (LSE: SBRY) to pull their hair out. Latest data showed the collective market share of Aldi and Lidl hit a record 10.5% during the three months to 19 June, with sales at these outlets exploding by double-digit percentages once again.

By comparison, sales at Sainsbury’s slumped 1.4% lower during the 12 weeks, a result that pushed the firm’s share 20 basis points lower to 16.3%.

And the London chain can expect its take to keep declining as consumers tighten their belts following June’s Brexit vote, and flock in even greater numbers to the low-price chains.

Meanwhile, the recent acquisition of Argos operator also appears a little less promising as shoppers look set to put big ticket purchases on ice.

Of course this backdrop bodes ill for future dividends. A payment of 10.3p per share is forecast for the year to March 2017, down from 12.1p the previous year but still yielding a handsome 4.1%.

Dividend coverage of 2 times is robust, but investors should bear in mind the supermarket’s colossal £1.8bn net debt pile as of March. And with sales looking set to struggle for some time yet, payments at Sainsbury’s could come under severe pressure looking ahead.

Pipe dreams?

Like Sainsbury’s, energy giant Centrica (LSE: CNA) also faces a period of significant revenues stress as households flock from its British Gas division.

The company could see departures pick up in the months ahead should recession cause customers flock to cheaper, promotion-heavy independent suppliers. And the Competition and Markets Authority’s plan to launch a database to help customers compare deals could crank Britain’s growing appetite to switch suppliers up a notch or two.

Furthermore, Centrica’s drive to streamline its upstream operations is unlikely to significantly transfer its bottom line as oil prices look set to remain under pressure. And this doesn’t bode well as the firm reported £4.4bn worth of net debt in April.

The number crunchers expect the energy supplier to raise the dividend to 12.3p per share in 2016, up from 12p last year and yielding 5.5%. But dividend coverage of 1.2 times is far from robust.

I believe Centrica’s turnaround plan still has plenty to accomplish before investors can expect the firm’s progressive dividend policy to be resurrected.

Shell struggles

The depressed oil price also bodes ill for Royal Dutch Shell (LSE: RDSB), naturally. Sure, investors have been piling back in to ‘Big Oil’ in recent weeks as a tool to lessen the impact of Brexit. But those expecting more secure dividend security than that offered by UK-focused companies could end up disappointed.

The acquisition of BG Group was intended to turbocharge Shell’s cash flows. But this was all dependent on a healthy crude price, a scenario that’s becoming increasingly perilous as global supply remains plentiful and decarbonisation initiatives steadily eat into fossil fuel demand.

And there is only so far Shell can go with divesting assets to finance shareholder rewards before they become earnings-destructive. Additionally, the business hardly has a robust balance sheet to keep payouts rising — total debt was $70bn in  March.

A dividend of 188 US cents for 2016 may yield 6.3%. But this dwarfs anticipated earnings of 105 cents. I reckon Shell’s a risk too far for dividend chasers, in the near-term and beyond.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Centrica and Royal Dutch Shell B. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.