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Friday Email: 27 November 2015

Every Friday morning our lead analyst Mark Riding sends out his weekly run-down and upcoming events in the investor calendar, like this one:

THE FTSE 100 traded down earlier in the week to a low of 6226 before rallying from Tuesday through to Thursdays close at 6394 with Friday looking like a down day if the futures are anything to go by.

The past week had some very good dividend increases from Renew (+40%), Paragon (+22%), Telecom plus (+ 15.8%), Greencore (+12.8%), Pets at home (11.1%), Compass (+10.9%), Babcock (+10%), Betfair (+67%), RPC (+18%), Britvic (10%) and Paypoint (14.5%). Pennon this morning announced that its sector leading dividend policy of RPI + 4% would continue until 2020. Now that is pretty safe. Protected from inflation with 4% on top, currently yielding around 4%.  Mind you, you have to pay up for it, with them trading on over 20 times earnings.

The week ahead is less busy than last week but there are still a fair number of companies reporting. There has been some speculation that the dividend bubble is about to burst. I'm not convinced, but then again I would say that. The dividend cover across the board has been falling, so there is some merit in the arguments. The dividend cover in the resources sectors is very poor and a couple more years of falling prices will force these companies to reduce their dividends. BHP Billiton will have to borrow to maintain their dividend if the current forecasts are accurate. I would have been confident about BHP had it not been for the disaster in Brazil, but the Optimizer throws up warning signs and with them yielding 11.79%, the market must be very sceptical about the dividend. A 50% dividend reduction will still leave them on a healthy yield. However, they have said that they will maintain a progressive dividend policy throughout the cycle. Amec have already taken the step of a 50% reduction and still yield nearly 6% on the optimizer in spite of going ex-dividend yesterday. Rio Tinto still look ok and they continue with share buybacks. Elsewhere, companies earnings seem to be rising nicely enabling dividend increases in line with earnings with some companies taking the opportunity to build their cover.

Here is an article on this very point:


This email was originally sent on Friday 27 November 2015

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