Investors Chronicle dividend of the week - 07/10/2013

Investors Chronicle – Dividend of the week

Recent falls in the market, which are welcomed at DividendMax as it drives up yields and makes stock selection easier, have lead us to have a look at some of the upcoming declared dividends to see if the recent sell off in the markets has revealed any short term dividend capture opportunities.

This week we are going to concentrate on the U.K. and use the DividendMax countdown to focus on the current high yielding short term dividend grabs. Our initial filter is for the FTSE 350 and all of the stocks that have declared their next dividend. This reveals that around 50 companies in the FTSE 350 have declared their dividends. The countdown gives the yield of the dividends concerned as a straight percentage of the current price. We will eliminate all of the stocks with a yield of less than 2%.

The long list is:

Balfour Beatty, Close Brothers, Galliford Try, Smiths Group, Micro Focus International, Go-Ahead Group, Ashmore Group and British Sky Broadcasting.

Let’s have a look at their recent price history

We can immediately eliminate British Sky Broadcasting as this has been a relatively recent dividend of the week.

Given that we are looking for stocks that have retreated considerably from recent highs, we will also exclude Close Brothers, Galliford Try and Go-Ahead Group.

The remaining companies are Balfour Beatty, Smiths Group, Micro Focus and Ashmore Group.

At this point we can look at the fundamentals:

*Includes special dividend **Return of value ‘D’ share scheme.

We are, rightly or wrongly going to eliminate Balfour Beatty at this stage as it goes ex-dividend on the 9^th October and we are too close to the ex-dividend date for a dividend capture exercise. We prefer to be a good few weeks out, before people start coming in for the dividend.

What are the brokers saying about the three survivors? The table below represents the number of brokers in each of the recommendations categories of buy / hold / sell:

This leaves us with an interesting selection including a fund manager, an IT software company and an engineering company. If the brokers are to be believed, Ashmore looks like the choice.

Let’s have a look at their recent dividend histories:

Micro Focus Group

2013 return of value of 60p.

Smiths Group

2013 final dividend of 27p goes ex on 23^rd October along with a 30p special dividend.

Ashmore Group

2012 final dividend 11.75p (declared goes ex 6^th November)

We expect that all three companies will continue to increase their dividends

As with previous dividends of the week, we are left with a difficult choice. Ashmore Group is a specialist emerging markets asset manager that has performed very well in the face of recent turmoil in the emerging markets. It has been a solid performer and its optimized yield over 3 dividends is creeping close to 7%. It reached 7.4% this time last year which suggests that it still has a little way to go.

Micro Focus has been a dividend paying powerhouse for some years and this is set to continue. They recently announced a ‘return of value’ to shareholders amounting to 60p per share on top of the dividends for the year.(which have already been paid) This will be executed by issuing ‘D’ shares and the ‘return of value’ can be taken in the form of income or capital or a combination of the two.

Smiths Group recently announced an increase in its final dividend and announced a special dividend of 30p per share making 57p, going ex-dividend on 23^rd October. Smiths is a very reliable performer and the shares have fallen back since the dividend announcement in line with the market to 1343p. The upcoming dividend of 57p represents a return of 4.2% and looks a little easier to come by than the Microfocus ‘return of value’, which requires shareholders to elect how they receive the return. 

A tough choice as always and investors could do well in any of the final three stocks, but we believe that Smiths Group offers a solid cash return to investors in the short term. Set against a backdrop of uncertainty in the US, now may not be the time to buy, but with increased volatility as the game of hardball unnerves investors, an opportunity to pick up these big dividends at even lower prices may well emerge over the next week or so.