It’s a tough time for income investors as many companies, including those in the FTSE 100, slashing their dividends as a result of coronavirus. It’s clear many more dividends could be postponed as more companies report and get to grips with the impact the pandemic is likely to have on business.
Though some dividends will be safer than others. Morgan Stanley in a research note has highlighted 11 London listed stocks which it thinks have a more secure dividend. These companies are BAE Systems (LSE:BA.), British American Tobacco (LSE:BATS), Daily Mail and General Trust (LSE:DMGT), Direct Line Insurance (LSE:DLG), Hikma Pharmaceuticals (LSE:HIK), Morrisons (LSE:MRW), National Grid (LSE:NG.), Sainsbury’s (LSE:SBRY), Severn Trent (LSE:SVT), Unilever (LSE:ULVR) and Vodafone (LSE:VOD).
There’s no place on the list for income favourites GlaxoSmithKline (LSE:GSK), BP (LSE:BP.) or Royal Dutch Shell, with the bank warning of dividend cuts of 40% to 50% in the oil sector later this year.
Morgan Stanley based its predictions on four criteria, including estimates for a yield close to 4% or more in each year from 2020-22 and a dividend at least flat over the next three years.
The basket currently offers an average 2020 dividend yield of 4.9%, which is 40 basis points higher than the median stock in Europe. It also boasts three-year compound annual growth of 4.7%, which is in line with the wider market.
The companies making Morgan Stanley list generally are quite defensive, larger companies with wide moats, ie. high barriers to entry to their industry.