Over £18bn of UK dividends have been axed so far this year as a result of the coronavirus pandemic. For investors looking for dividends, the pool of companies to choose from is shrinking. But there are some companies that I think will keep paying out to shareholders.
The share combining growth and income
Through buying shares in Moneysupermarket (LSE: MONY) now, an investor buys a share that combines income with long-term growth potential. The shares could shoot up once the stock market recovers from the coronavirus crash.
The comparison group has pulled its full-year guidance but reiterated plans to pay its final dividend, despite Covid-19 starting to impact trading.
Following strong full-year results, I’m confident there’s growth potential in the business. For the year ending December 2019, pre-tax profit rose to £116m from £106.9m in 2018, with revenue up 9% at £388.4m. The dividend yield including special dividends is over 6%.
The group is on the lookout for a new chief executive. That is both a risk and an opportunity, depending on who is appointed. I think that given the business is performing well, it’s likely an opportunity for new thinking and energy at the top of the firm. This could be a boost.
The defensive FTSE 100 share
In a volatile market like the current one, owning a utility such as Severn Trent (LSE: SVT) is a smart way to minimise the ups and downs. Defensive shares have tended to perform better during the biggest dips in the market. With so much uncertainty around what will happen next with coronavirus, it could be a good strategy to have defensive shares.
The shares yield around 4.4%. The growth in the dividend tends to be steady and dividend cover is above 1.5. This tells me that the dividend has a reasonable chance of being sustained. Severn Trent has predictable earnings and that also helps management navigate through turbulent waters such as these.
I wouldn’t expect spectacular growth from Severn Trent when markets recover. What I would expect though is it to fall less in a bear market and grow steadily in a bull market. To me this makes it a good share to own.
The one that cut its dividend before the crisis
Somewhat fortuitously, Vodafone (LSE: VOD) had already had to cut its dividend 40% last year. That lessens the risk of a further cut unless earnings fall dramatically. Giving some further confidence to investors is the fact the telecoms giant recently made it onto a list of shares Morgan Stanley reckons are less likely to suspend dividends.
Even at this new reduced rate, Vodafone yield is well over 6%. Management won’t want to cut the dividend in consecutive years.
The Vodafone share price is now at a level not seen even during the 2008 recession. I think in many ways, especially given it’s still paying a dividend, that makes it too cheap to ignore. Better still, the group is performing well, especially in some emerging markets in Africa for example.
The telecoms industry faces challenges for sure, but overall, I think it’s worth investing in Vodafone for its yield.
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Andy Ross owns shares in Moneysupermarket.com. The Motley Fool UK has recommended Moneysupermarket.com. 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.