When a company slashes its dividend obligations, it can send many a chill through the wallets of shareholders, especially when that income can be an important part of an investor’s financial armory. For Nick Read, only appointed boss of Vodafone last October, the slashing of the dividend was an acutely humiliating move. For Vodafone investors, already holding shares worth significantly less than at any time since 2009, it was another financial body blow yet. It wasn’t an isolated view, with other analysts pointing to the mouth-watering annual dividend yield still available – 6.3 per cent – more than the yield from the UK stock market as a whole. A brilliant investor or discount trap?
Motley Fool. A bargain arrived the resounding answer back, with expert Royston Wild boldly stating: ‘It’s money talk about that I’ve long championed and one which I remain ever-optimistic about.’ Only time shall inform. Cuts at Centrica and BT do look on the cards, based on the financial ratios analysts usually pore over to get a common sense of where a company’s dividend is heading. The main element one is the so-called ‘dividend cover’ – a way of measuring how a lot of a company’s future income will be utilized by dividend obligations to shareholders.
Although there is no solid rule, if the percentage of profits to dividends is above two, then the outlook for the dividend is known as rosy – plenty of earnings from which to pay shareholders their income. Below too, analysts are prone to the odd nervous tick about dividend sustainability. Below one, the dividend alarm bells start buzzing like the bells of St Clement’s. The dividend cover for Centrica is 0.93 while for BT and Vodafone it is 1.73 and 0.77 respectively. So, enough dividend gloom to cut and run and dive into cash?
Not in any way, although it would be remiss of me to discuss dividend imperilment rather than mention seeing your face whose very name transforms most investors’ dreams into nightmares – Jeremy Corbyn. So, let’s start again. Despite Vodafone, concerns over future dividends at other FTSE 100 companies and the Corbyn fear factor, MOST investment experts, and analysts still think that the dividend is the best income story in town. It’s that investors need to lessen expectations of the growth in income they can expect from the currency markets soon.
They must box clever. Chris McVey is a finance supervisor with asset supervisor Octopus Investments. McVey told Wealth: ‘It’s not absolutely all doom and gloom out there on the dividend entrance and income traders should not stress. As its name implies, Octopus UK Multi-Cap Income (one of the money McVey helps manage) looks for dividend-friendly investments whether they may be FTSE 100, FTSE All Share, or FTSE AIM detailed.
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Its collection includes FTSE 100 companies such as Lloyds Banking Group and luxury goods supplier Burberry – businesses that McVey prefers because fundamentally they may be well run. But they are not top 10 holdings. Among the fund’s biggest positions are stakes in FTSE All Share listed STV Group (dividend produce of 5.4 per cent) and Ten Entertainment Group (5 %). Other key positions are in FTSE 250 shown Saber Insurance (5.1 per cent dividend yield) and FTSE Aim stock Premier Asset Management (4.7 per cent). Of course, Octopus is not the only UK collateral income account to cast its attention beyond the FTSE 100 Index. Similar funds are run by famous brands Lazard (4.4 % annual produce), Marlborough (4.5 per cent), and Miton (4.5 %).
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