It’s fair to say that dividend investing has become very challenging in the wake of the coronavirus outbreak. In the space of just a few weeks, a whole host of FTSE 100 companies – including InterContinental Hotels, ITV, Taylor Wimpey, Whitbread, and British Land – have announced they’ll be suspending their dividends in the near term, which is a disaster for those who rely on dividends for income.
While it’s likely that more FTSE 100 companies will announce dividend cuts in the coming days and weeks, there are some companies that should be able to maintain their payouts in the current environment. With that in mind, here are some stocks analysts at Morgan Stanley believe have a low probability of a dividend cut.
Safe FTSE 100 dividends?
In a recent research note on dividend stocks, Morgan Stanley analysts listed 35 European dividend-paying stocks they think should be able to keep paying dividends in the near term. Of those, nine are UK stocks listed in the FTSE 100 index:
British American Tobacco
There are a few things that stand out about that list. Firstly, the majority of these companies are very ‘defensive’ in nature. For example, no matter what happens to the economy in the next year, people will still need electricity (National Grid), water (Severn Trent), food (Morrisons, Sainsbury’s, Unilever) and medicines (Hikma). Smokers are still likely to smoke (British American Tobacco). There are no highly cyclical companies on the list.
Secondly, there are a number of very popular FTSE 100 dividend stocks missing from the list. For example, there’s no Royal Dutch Shell or BP – the analysts believe the oil majors could be hit hard by the oil price crash and be forced to cut divis by up to 50% this year.
There’s also no Lloyds Bank or HSBC (banks are highly cyclical), BHP or Rio Tinto (mining companies are also very cyclical), GlaxoSmithKline (it hasn’t increased its dividend in years which is a red flag) or Tesco (it only recently introduced its dividend).
This is certainly concerning for the average UK dividend investor who probably owns a few of these companies. Diversification is certainly important in this environment.
Which FTSE 100 dividend stocks would I buy?
Would I buy all of the stocks on Morgan Stanley’s list of safe dividend stocks? No, I wouldn’t. In my view, a number of those companies are facing challenges that could impact their ability to maintain their dividends down the track.
One stock I do like the look of, however, is Unilever. It owns a fantastic portfolio of trusted consumer goods brands that people all over the world use every day, such as Dove, Persil, Cif, and Colman’s (I’m still using all of these brands in this crisis), and it has a fantastic long-term dividend growth track record. With a yield of nearly 4% on offer right now, I’d be happy to buy ULVR for my portfolio.
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Edward Sheldon owns shares in Unilever, BAE Systems, GlaxoSmithKline, ITV, Royal Dutch Shell and Lloyds Banking Group. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline and Unilever. The Motley Fool UK has recommended British Land Co, Hikma Pharmaceuticals, HSBC Holdings, InterContinental Hotels Group, ITV, Lloyds Banking Group, and Tesco. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.