It’s fair to say that the dividends on offer from some of Britain’s biggest companies have been eye-catching in recent years. With payouts forecast to break the £100 billion barrier in 2019, it’s no surprise that high yielding blue chips have been in demand. But it’s not all good news...
Last week, the telecoms giant Vodafone said it was cutting its dividend this year by 40 percent. That takes the payout per share down from an expected 15 euro cents per share to nine euro cents. That kind of cut was once close to unthinkable from one of the biggest and best dividend payers in the FTSE 100.
But Vodafone’s dividend cut wasn’t unexpected. It’s no secret that the demands on its squeezed cash flow have been on the rise in recent years. Its obligations to invest in new 5G infrastructure, reduce debt and cover acquisition costs are just a few of the reasons why its shareholders will be lighter in the pocket this year.
Indeed, Vodafone isn’t alone. Another high profile FTSE 100 dividend cut came from Marks & Spencer earlier this year. It also set out plans to lop 40 percent off its payout - and the news this week from M&S seems to be getting worse.
Then there are those companies that look like they’re teetering on the edge of slicing their dividends. For the most part the City seems to be expecting cuts from the telecoms giant BT and utilities group Centrica. There are also rumblings that the very high yields at housebuilders such as Persimmon are cause for concern.
Name | Yield % | Yield % (forecast next year) | Dividend Cover | DPS Cuts (past 10 years) | DPS Gwth % (current year) | DPS Gwth % (forecast next year) |
4.2 | 8.6 | -0.75 | 4 | -67.4 | 150.6 | |
11.4 | 9.1 | 1.2 | 2 | - | -26.4 | |
11.2 | 11.2 | 1.2 | 1 | - | 0.43 | |
6.3 | 5.0 | 1.6 | 1 | - | -17.5 | |
7.6 | 7.4 | 1.8 | - | - | -1.88 |
As this table shows, Vodafone and M&S have already issued their dividend cuts, so their current yields are now slightly lower - at 4.2 and 6.3 percent respectively. In the case of Vodafone, forecasts are optimistic that the payout will start to be clawed back over the next couple of years - hence a higher forecast yield for next year. But Vodafone has issued four separate dividend cuts over the past 10 years. Together with negative dividend cover, that means there could be quite a lot of hope baked into those forecasts.
For the other…
