FTSE 100 companies have cut their shareholder payouts by nearly £24bn since the start of the pandemic. This has included a slashing of the dividend from Shell, which hadn’t been cut since the Second World War. Other high yielding companies including many of the housebuilders and recently BT have also either scrapped or reduced dividend payments.
Within the FTSE 350, there are still many companies however paying a dividend. It can be easy to lose sight of that fact. As mentioned before I’m particularly interested in defensive shares now and have been adding to my holding in Reckitt Benckiser for example. I’m also interested in investment trusts which are likely to be able to keep paying a dividend through these uncertain times.
These 10 companies then are amongst the foremost which I think income investors might be interested in and I’ll take a brief look for each at how likely it is they’ll avoid cutting the dividend.
The pharmaceutical giant has kept its dividend held at 80p for four years while the business is repositioned under CEO, Emma Walmsley. It’ll increasingly focus on immunology and generally is investing in R&D to find blockbuster drugs. A strategy rival AstraZeneca is much further ahead with.
Overall the flat dividend may be fortuitous in protecting investors from a cut. Alongside that, the defensive nature of the business means the dividend should be safe unless the pipeline fails to deliver in the coming twelve months.
The dividend yield on the shares is 4.8%. Dividend cover has been rising and in 2019 was 1.55, which is now quite good for a FTSE 100 company with an above-average yield.
Likelihood of cutting dividend 2/10
Amongst the challenges for a big utility like National Grid are the huge debt it carries and the need for ongoing capital expenditure. Another is the reliance on mostly regulated earnings, meaning it’s more difficult raising prices.
Despite these challenges, I think overall it’s a decent investment for an income-focused investor. The shares are yielding over 5% and this payout is has been rising very steadily for a good number of years. A dip in earnings though has seen cover plummet to below one so this is something to keep an eye on.
Likelihood of cutting dividend 3/10
I’d argue the only reason to invest in Imperial Brands is for the dividend. There’s very little else that’s attractive about the shares in my view. The yield though is very high at over 11% and has been growing at around 10% a year for the last five years.
Dividend cover has been kept to an ok level and last year was 1.3. This doesn’t allow a lot of leeway for earnings to fall, but the sector has a history of being able to raise prices and cut costs and keep enough demand for their products.
Likelihood of dividend cut 3/10
Legal & General
The shares in Legal & General yield 8.6%. The shares have typically been high-yielding in recent years and with coronavirus having caused share prices to plunge, this has pushed up the yield.
The dividend has been growing steadily by often around 7% in recent years and given how high the yield has been the cover is quite good as well. Recently it has been 1.74.
The management are one of the only ones to stand up to regulators and to say they will continue to pay a dividend. Great news for those looking for income as part of driving their overall investment returns. It’s uncertain though to what extent the company will be able to withstand that external pressure if the economy goes into reverse.
Legal & General as an asset manager will have been adversely impacted by the economic slowdown which is another factor to consider.
Likelihood of dividend cut 6/10
In October 2017 it was announced that Tesco would be reintroducing its dividend after progress had been made in turning the business around. Since then the dividend has been growing rapidly. It has also been covered twice by earnings. The dividend yield is now 3.9%.
Operating profit has also risen significantly since the dividend was reintroduced, as have adjusted earnings per share.
I expect since Tesco has only relatively recently reintroduced the dividend and has benefitted from more sales as a result of coronavirus, the chances of a dividend cut have to be considered very low. Even more so because the dividend has only just been increased. The company proposed a final dividend of 6.5p a share, up from 4.10p a share a year earlier.
Likelihood of dividend cut 1/10
The FMCG company isn’t a high-yielding share with a dividend yield of 2.6%. If inflation rises like some expect then this won’t be too much higher than the rate of inflation. But I’m holding onto my shares because of their defensive nature, the potential for dividend growth and the solid dividend cover. The company also has a relatively new CEO, whose come from PepsiCo and plans to invest for growth.
He’s written down the value of the major acquisition made of Johnson Mead, a 2017 purchase which cost RB £17bn to buy. Earlier this year, he announced the plan to improve earnings per share growth of 7-9% at the end of three years. This involves a focus on China and focusing on hygiene, health and nutrition product categories.
As long as the company can bounce back into profit and improve its efficiency then the dividend should be safe. The investment needed to improve the group shouldn’t risk the dividend.
Likelihood of dividend cut 5/10
Phoenix Group Holdings
This group which is involved in pensions and insurance has a dividend yield of 7.7%. Historically the dividend has been a bit up and down with negative to very low dividend cover. How well the business will perform against the backdrop of an economy that in the UK might fall by 14% is unclear but it’s unlikely to be good.
The group has committed to pay a final dividend, which will be welcome news for those that have invested for that reason.
In the middle of this year the deal to acquire ReAssure for £3.2bn will be completed and the company is soon to have a new boss, Andy Briggs, the former head of Friends Life and Aviva UK.
Likelihood of a dividend cut 8/10
Shares in gold miner Centamin fell with the rest of the market back in March. Probably a case of the tide going out and all ships sinking. Since then though the share price has bounced back strongly, to higher than where it started the year. Probably as a result of investors wanting indirect exposure to the rising gold price.
Although the dividend yield is 4.85% the dividend isn’t that attractive in many ways. Probably as a result of following the gold price up and down the dividend fluctuates and the cover has tended to be very near to one which isn’t great as it means earnings are the same as the dividend.
On the positive side, the company has cash and its production is on track which could support the dividend.
Likelihood of a dividend cut 4/10
Primary Health Properties
This owner of GP surgeries and other healthcare properties in the UK and Ireland has a dividend yield of 3.6%. As a REIT it has rules around the distribution of profits as a dividend to shareholders and the lack of flexibility there could be a problem when it comes to for saving for a rainy day like now.
Nonetheless, the share price is doing well and the dividend has been growing steadily. As with other REITs though the dividend cover is low or negative. In the case of Primary, it’s the latter and has been for some years which isn’t ideal.
On the upside, it should be able to continue collecting rent as 90% of the group’s rent roll is funded by the NHS or its Irish equivalent, meaning rental income should be more secure.
Likelihood of a dividend cut 3/10
The comparison group offers investors a combination of growth and income I believe. In early April the group committed to pay its final dividend.
Travelsupermarket will be hit by covid-19 and even before the virus the group wasn’t firing on all cylinders with the money division struggling.
Nonetheless, the dividend yield is 3.6% and has been growing by around 6% a year for the past three years. Cover has stayed above 1.5x which indicates to me a dividend cut is very unlikely.
Moneysupermarket then combines income and growth potential in my book and should weather the storm we’re in.
Likelihood of a dividend cut 3/10
Temple Bar Investment Trust
This investment trust falls into the high yielding category. The dividend yield is over 7%. The discount to net asset value has widened to approaching 10% versus an average discount over the last 12 months of more like 3.5%. The trust has a gearing of around 13.3% which is higher than some other similar trusts.
At the end of March, the trust had Royal Dutch Shell and Barclays and RBS as its third, fifth and sixth biggest holdings respectively. It’ll be interesting to see if that’s changed. Especially with Shell rebasing its dividend very recently.
13.3% of the trust is in cash with further hedges provided by 2.9% of assets being in physical silver and gold. The heavy weighting towards big UK companies at a time of dividend cuts is slightly concerning but for now, I think the big cash position should see it through.
Likelihood of a dividend cut 2/10
It’s noticeable that many of the companies still paying a dividend are defensive in nature, as I think this list highlights. Phoenix Group looks to me like the most likely to cut its dividend due to its weaker finances whereas on the other side of the scale I don’t forsee GSK, Tesco or Temple Bar taking an axe to their shareholder payout.
Many other companies are continuing to pay a dividend and these 10 weren’t chosen for any particular reason other than they’re likely to be popular with private investors and cover a range of industries. Also, I own shares in half of them, so follow them closely and have a decent understanding of their challenges as well as reasons why an investor might want to buy or hold the shares.
Please note I own shares in AstraZeneca, National Grid, Legal & General, Reckitt Benckiser and Moneysupermarket.
You can read about my most recent investments here.