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Are dividends from SSE plc (6%), Barratt Developments plc (7.3%) and Direct Line Insurance Group plc (7.3%) now simply unmissable?

Alan Oscroft — Thu, 30 Jun 2016 14:17:14 +0000

At 6,350 points, the FTSE 100 is higher than it was on the eve of the fateful EU referendum, yet that simple fact hides a significant change — there’s been a big move from banking, insurance and housebuilding shares to ones that are considered ‘safer’, and that has exposed some tasty dividends on both sides of the shift.

Cash cow still delivering

Shares in SSE (LSE: SSE) dipped quite sharply in the wake of the Brexit result, though they’ve pulled back most of the loss to reach 1,505p as I write. The drop seemed bizarre, as SSE only does a tiny fraction of its business in Ireland and mainland Europe — about 3% of turnover in the last full year. The firm promptly issued a statement saying the exit “presents no immediate risk” to its operations, though it did raise the risk of uncertainty over the regulatory framework within which it works.

SSE looks a safe Brexit bet to me, and at the shares’ post-vote low point you could have tied in a forecast dividend yield of 6.6%! As it stands, there’s still a 6% yield on the cards, with 6.1% pencilled in for 2017, as EPS looks set to remain pretty much level.

SSE’sÂ current share price is only around 13 times forecast earnings for this year, and for a company with such high and transparent dividend payouts, that looks cheap to me.

Cheap housing

The crash in housebuilders looks overdone, in my opinion, and at 395p apiece I see Barratt Developments (LSE: BDEV) shares as too cheap. They have bounced back a little since the vote, but we’re still look at a 32% fallÂ since close of play on referendum day. That’s dropped the shares to a price-to-earnings multiple of just 7.2, which is only around half the long-term FTSE 100 average.

What’s more, Barratt’s forecast dividend yield now stands at 7.3%, rising as high as 8.8% on 2017 forecasts. Sure, the UK’s GDP growth is likely to at least slow, and we could even fall back into recession. And yes, house prices could well fall back a little, as demand seems likely to cool. But falling land prices also provide an opportunity for housebuilders to top up their land banks at a lower cost.

I really do see the kind of emotional over-reaction that we usually get in times of crisis here, and Barratt Developments is looking like a good contrarian opportunity to me right now.

Battered insurance

The insurance sector has also received a pummelling, but why should an insurer that does its business 100% in the UK be damaged by the vote result? That’s what’s happened to Direct Line Insurance Group (LSE: DLG), whose shares have shed 8.3% since the big event to reach 343p.

Are we, as a nation, suddenly going to stop insuring our cars, our homes, and all the other things we hold dear simply because we’re not going to be in the European Union for much longer? Of course not. No, the cash is still going to keep pouring into Direct Line’s coffers for it to hand out to its shareholders in the form of dividends, and the forecast yield for this year now stands at 7.3%!

That’s from shares on a forward P/E of only 12, which looks like a screaming buy to me.

The post Are dividends from SSE plc (6%), Barratt Developments plc (7.3%) and Direct Line Insurance Group plc (7.3%) now simply unmissable? appeared first on The Motley Fool UK.

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Alan Oscroft 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.

National Grid plc, SSE PLC And United Utilities Group PLC Could Be Good For Your ISA

Alan Oscroft — Fri, 11 Mar 2016 13:59:51 +0000

Should you go for growth or income when planning your ISA? While there’s plenty of room for the occasional higher-risk growth candidate from time to time, if that’s what you fancy, I reckon the bedrock of a long-term ISA should be composed of dividend-paying blue-chip shares from the FTSE 100 — with at least one utility company in the mix.

The companies that provide our gas, water and electricity enjoy a very predictable business. Demand doesn’t vary too greatly, and by taking on long-term energy contracts they can avoid surprises on the cost front, too. And that makes steady predicable dividends that much easier.

Look at National Grid (LSE: NG). It’s been lifting its annual dividend year after year, and offered shareholders a yield of 5% last year. Earnings are expected to only grow slowly over the next few years, but we still have steady dividend increases on the cards thatÂ would yield 4.6% for the year to March 2016, with forecasts lifting that to 4.8% by 2018 — the yield has dropped a little because the share price has risen 12% over the past 12 months, to 963p.

Those yields would be covered around 1.4 times by earnings, which is pretty strong for the utilities sector, and National Grid says it should be able to boost its annual cash payment at least in line with RPI inflation for the foreseeable future.

Biggest dividend

Over at electricity supplier SSE (LSE: SSE), we’re looking at even better dividends, with a yield of 5.9% paid in 2015 and with 6.3% forecast for this year on shares priced at 1,457p. That would be a little less well covered at 1.25 times, but it’s still reasonable for a utility firm. The share price hasn’t done much over the past five years, putting on just 17%, but that’s still ahead of the FTSE and those 6% dividends are around twice the long-term FTSE average.

SSE has the same dividend policy as National Grid, too, and at interim time told us it expects to increase its 2015/16 full-year dividend at least in line with RPI inflation — and it is targeting the same thereafter.

Water firm United Utilities (LSE: UU) actually has a couple of years of falling earnings forecast — 11% this year and 2% next. But analysts are expecting an 8% uptick for the year to March 2018, and in the long term the firm’s earnings should be solid. Perhaps unsurprisingly, United Utilities also has the same target of at least matching RPI inflation with its dividends, and in its first-half update said it expects to manage it at least until 2020.

With the shares at 894p, that would mean yields of 4.2% this year, rising to 4.4% by 2018, with cover of around 1.2 times. It’s looking like the weakest dividend of the three, but by way of compensation the share price has put on 57% over the past five years, easily beating the FTSE’s meagre 6%.

Long-term wealth generation

You’re not going to get the white knuckle ride that turns a lot of potential investors away from shares (and, on the other hand, excites a good few too), but safe investments like these three should help your ISA perform very well over the decades — and putting the cash into shares will almost certainly beat the pants off any cash ISA.

The post National Grid plc, SSE PLC And United Utilities Group PLC Could Be Good For Your ISA appeared first on The Motley Fool UK.

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How Safe Are Dividends At SSE PLC (6.5%), Centrica PLC (5.8%) And National Grid plc (4.5%)?

Alan Oscroft — Fri, 04 Mar 2016 13:33:54 +0000

I was shocked when I read that Barclays had decided to slash its 2016 dividend by more than half, to yield only around 1.8% instead of the 4.4% the tipsters had been suggesting. And that’s reminded me that we should not just assume that our investments are going to keep on paying out the cash.

Super yield

Look at SSE (LSE: SSE), which is a big favourite among high-yield investors. It’s been offering up dividend yields of close to 6% for years, and for the year to March 2016 there’s a 6.5% yield forecast, with similar on the cards for the next two years — a share price that has dropped 16% since May last year to 1,433p has helped boost that percentage.

The problem is, there’s a 9% fall in earnings per share predicted for this year, followed by zero change for each of the next two years. In 2015 we saw dividend cover of 1.4 times, but that would drop to just 1.25 times on this year’s forecasts, and a shade less by 2018.

In its January trading statement, SSE reiterated its intention of “targeting an increase in the full-year dividend for 2016/17 of at least RPI inflation, with annual increases thereafter of at least RPI inflation“.

So we’re probably safe for this year and next, but if earnings don’t start picking up again, it won’t be sustainable for ever.

More erratic

Dividends at gas supplier Centrica (LSE: CNA) have been less stable, with a couple of years of falling earnings leading to a 21% dividend cut in 2014 followed by another 11% in 2015. There’s a further 9% decline in earnings currently forecast for the year to December 2016, yet the City folk are expecting the dividend to be lifted a little to yield 5.8% on today’s 226p shares — and with only a 1% EPS gain penciled in for 2017, they’re expecting a further dividend boost to 6%.

That would give us dividend cover of around 1.3 times this year, dropping to 1.26 times next. Again, I find that cutting it a bit fine, and Centrica has made less of a commitment to dividend growth having merely said in February’s full-year report that its progressive dividend policy is “tied to confidence in underlying operating cash flow“.

Again, probably safe, but by no means certain.

The safest?

The National Grid (LSE: NG) share price has bucked the trend, being the only one that has gained in the past 12 months — albeit a modest 8% to 947p. The potential dividend yield is the lowest of the three, with a relatively modest 4.5% (still way ahead of the FTSE 100 average) expected for the year to March 2016, blipping up a little to 4.7% by 2018.

But the nice thing is that National Grid’s dividend should be a bit better covered than the other two, with the 5% EPS rise forecast for this year taking it to 1.4 times. Admittedly, the next two years with a suggested EPS rise of only 2% in total would drop that cover to 1.35 times, but that would still be ahead of the pack.

National Grid’s dividend is probably the safest of the three, but the lesson that we should not be complacent is a welcome one.

The post How Safe Are Dividends At SSE PLC (6.5%), Centrica PLC (5.8%) And National Grid plc (4.5%)? appeared first on The Motley Fool UK.

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