It is always easier to pick dividend of the week after a big fall in the markets as yields are inevitably rising, but caution creeps in as we near May and there is always that feeling that through the summer months, the markets will move sideways and probably down. However, the good thing about this time of the year is that there are a lot of final dividends to be had.
Our first filter on using DividendMax reflects my caution as we select the FTSE 100. The top 5 are Resolution, Admiral, Legal & General, Vodafone and BAE Systems. We have already nominated Resolution, Legal and General and Vodafone for dividend of the week. So, it will be either Admiral or BAE systems. Please note that Resolution and BAE both go ex tomorrow so today is your last chance to buy them cum-dividend.
Legal and General go ex the following week and Admiral the week after that. The dividend track record at BAE is very impressive, but I am still very nervous of defence stocks as government budgets remain under pressure. However for BAE, which does have a large aviation arm, analysts are forecasting growth in both revenue and earnings and a forward P/E of just 9.3x, so it is very tempting. Not as tempting as it was last June when it was 270p.
Admiral are a company that have a really good track record of growth and will be beneficiaries of the current desire to curb the compensation culture in the U.K motor market. It is noticable that they have recently brought in-house two law firms by means of joint venture to help with this process. Obviously if this succeeds we all hope it will lead to lower premiums and not just go to the bottom line of companies like Admiral. On Thursday 25th April, they will release an Interim Management Statement detailing the first quarter of 2013. They tend to pay similar dividends at both the half year and the full year stage. Last year the full year dividend increased by 19.8% which was much higher than analysts were forecasting. This year, the average of analysts forecasts is for the dividend to be flat. I think they will do better than that as they have done in previous years and will manage another increase. The 6500 staff were motivated by £3000 of free shares via the employee share scheme last year.
They go ex-dividend on May 1st for a final of 45.5p, payable on the 24th May. We are estimating a further 47.2p in September, so quite a lot of return to be had if the summer does prove to be quiet and in the space of under six months. They are at 1305p this morning with a years high of 1374p. At 1305p, this will generate a return of around 7% in under 6 months. On the two dividend optimizer this is showing an annualised yield of around 16.5%.
For the strong track record, well motivated staff, the international growth and the fact that people have to be insured to drive, Admiral looks like a good business to me and is Dividend of the week.
