BP has followed in the footsteps of its rival Shell and imposed a dividend cut. Oil majors are far from alone in cutting back shareholder payouts in the face of economic uncertainty. With the potential for more cuts on the cards if the economy worsens, here is where I’d look for income.
The Steady Eddie dividend payer
National Grid (LSE: NG) has a very respectable dividend yield of 5.4%. In the current environment that is a great income. It’s also one that’s unlikely to be cut, I believe. The combination of predictable revenues, alongside potential growth in the US and in its unregulated ventures division make me think it can raise earnings.
National Grid as a utility is less susceptible to the wider economy. Even if we’re unfortunate enough to get a second wave of coronavirus or the economy falters for other reasons, there will be a need for electricity.
On the dividend front, there have been steady increases. Keeping dividend growth incremental is sensible given National Grid’s need to invest in networks and regulated earnings. Between 2018 and this year, the dividend went from 45.93p to 48.57p, so there is a clear upwards trajectory.
Regulated utilities won’t be everyone’s cup of tea. There will never be strong growth from this share, but the dividend should be relatively safe and that’s good for compounding or for providing income now.
I believe National Grid has a dividend that’s sustainable and should avoid the chop, unlike many others right now.
A growth market to build shareholder returns
If it’s more dividend growth you’re after, rather than yield, then I’d suggest looking at Segro (LSE: SGRO). The warehousing company is riding the e-commerce wave. This has been particularly the case recently, with e-commerce being a winner from the coronavirus. A rise in online shopping means a greater need for warehouses that process orders. This is good news for Segro.
Just last week it lifted its interim dividend. This came alongside a pre-tax profit increase of 6.5% to £140.4m in the six months to the end of June.
A yield of not much over 2% might not be enticing at first glance, but consider the potential for income growth. The track record here is good with the dividend increasing from 15.6 in 2015 to 20.7p in 2019. With earnings also rising strongly, dividend cover has remained high, giving management the ability to keep raising the dividend. I fully expect it to keep doing so, even as management expands the business.
With e-commerce set to keep on rising, I can’t see demand for Segro’s warehouses declining any time soon. This is the best type of property to be invested in right now. I expect the share price and the dividend will keep rising nicely together.
I think that combined, National Grid and Segro have a lot to offer to investors looking for sustainable income. Chasing high yields at the current time isn’t sensible, but these companies should hopefully avoid any dividends chops.
Andy Ross owns shares in National Grid. The Motley Fool UK has no position in any of the shares mentioned. 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.