With British retail data increasingly suggesting a tough time for the high street in the months ahead, now is a great time to shift out of Debenhams (LSE: DEB), in my opinion.
The department store has seen its share price erode 23% during the past 12 months as sales numbers have steadily disappointed. But I believe Debenhams could continue to crumble as no end is seemingly in sight for the retailer’s checkout woes — the City has chalked-in earnings dips of 14% and 9% in the years to August 2017 and 2018.
On the plus side, Debenhams’ currency hedging extends beyond that of many of its rivals, giving it some flexibility when it comes to having to raise prices. But the prospect of sterling weakness enduring long beyond 2017 means this is likely to prove nothing more than a temporary boost.
So although Debenhams sports a monstrous 6.3% forward dividend yield — as analysts expect a maintained dividend of 3.42p per share — I reckon the huge work needed to even stand still makes the retailer a perilous payout selection, in the near term and beyond.
Not too tasty
Like Debenhams, evidence of top-line stress has seen The Restaurant Group (LSE: RTN) fall out of favour with investors in recent times, the eateries play shedding 41% of its value over the past 12 months.
The share price took another tumble last month after it announced that like-for-like sales collapsed 5.9% during October-December. While Britons’ spending on eating out and other social activities has remained resilient, the Frankie & Benny’s owner is not immune to the slowdown in broader consumer spending thanks to its vast presence in retail parks where footfall is declining.
And with the business also battling against increased competition, City analysts expect earnings to drop 20% in 2017, a result that is expected to push the dividend lower for the second consecutive year.
While a touted 16.3p per share reward still yields a market-mashing 5.3%, I believe the massive structural problems facing The Restaurant Group could see the dividend keep slipping beyond this year.
Running out of juice?
The steady erosion of its customer base also makes me less-than-enthused about the investment outlook for SSE (LSE: SSE).
The Big Six behemoth shed an extra 50,000 household accounts between October and December, taking its customer base to 8.08m. This compares with 8.28m a year earlier. The stunning rise of the cheaper, independent supplier remains a massive thorn in the side for Britain’s established suppliers, and SSE will likely struggle to stop the rot elsewhere as pressure on householders’ wallets rises in the months ahead.
With capital expenditure at SSE also moving through the roof, I reckon the business may struggle to keep its progressive dividend policy on track. So while a predicted payout of 91.4p per share for the year to March 2017 may yield a mighty 5.9%, I reckon those seeking abundant returns further out may be better off investing elsewhere.
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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.