It is time to reset our Dogs of the FTSE 100 portfolio. While half of 2017’s portfolio make it onto this year’s list, there are some new names. For a second year running our portfolio spans a diverse spread of sectors, from utilities to telecoms, financial services companies to retailers, and drug companies to tobacco firms. Here are our 2018 Dogs of the Footsie.
133.45p, yield 9.0 per cent
Investors in British Gas owner Centrica have had little to cheer recently. Its shares have lost two-thirds of their value since hitting a high of just over 400p in September 2013. The stock is down 33 per cent over the past six months alone.
However, the firm has one redeeming quality: a dividend yield of 9 per cent. But is the dividend safe? Its reported dividend cover of 2.6 means it looks that way, for now. That said, the poor performance of Centrica shares suggests investors are doubtful that protecting the dividend is the best way forward.
1304.5p, 7.0 per cent
SSE is expected to increase dividends by the same rate as retail price index inflation this year. Analysts have been expecting the firm to cut its dividend or at least stop linking payments to inflation for several years, but SSE has wrong-footed them.
It is a tough time for energy suppliers. However, SSE is in talks with the competition watchdog over a plan, with rival Npower, to spin off its domestic energy supply business.
Marks & Spencer
301.3p, 6.2 per cent
When was the last time you heard good news about Marks & Spencer? The once iconic retailer disappointed investors again with its Christmas trading.
This year it plans to close 14 UK stores as its struggles to compete against clothing rivals such as Zara and Asos. The group’s food business is also faltering. M&S’s ability to generate cash has helped support attractive dividend payments, but with the firm undergoing yet another ‘transformation plan’, investors can’t take anything for granted.
501.1p, 6.1 per cent
It is nearly eight years since the Deepwater Horizon oil spill forced BP to temporarily suspend its dividends. Then the oil price fell, putting pressure on BP’s balance sheet and cash flow, and leading to the questioning of BP’s ability to increase its resumed dividend payments.
However, its fortunes brightened last year as the oil price rose. BP is now generating enough cash to cover capital investment and dividends. The depreciation of the pound against the dollar since the UK’s Brexit vote has also been good news, as BP sets its dividends in dollars and pays them in sterling.
1320.4p, 6.1 per cent
Wafer-thin dividend cover of 0.4 does not invite much confidence in GSK’s ability to support its dividends. And not for the first time: in 2015, at a time of rapid revenue and profit losses, management promised to hold the dividend payout at 80p until at least the end of 2017. We have passed that deadline and the company’s financial position, while improving, still doesn’t look great. On the bright side, poor sentiment means GSK is on a seemingly very low valuation.
255.45p, 6.0 per cent
Investors wonder where growth is going to come from at BT. The company lost 5,000 pay TV customers in the third quarter, and has reported flat revenues in its consumer division. Meanwhile, expenditure is rising – and will rise further if it keeps to its pledge to roll out faster broadband across the UK – while the black hole in its pension scheme remains a headache.
804.7p, 6.0 per cent
National Grid, owner of the UK’s power distribution network, is a stalwart income stock. The firm’s stable business model and predictable income stream has made it a dependable dividend payer. But its shares have lost a third of their value since the middle of 2016 as investors shunned defensive holdings. The threat that a future Labour government could renationalise National Grid and an upcoming review of the regulatory price regime have also hurt the stock.
2898.5p, 5.9 per cent
Imperial Brands shares are out of favour because it is selling less tobacco as smoking declines. But the firm has increased its full-year dividend by 10 per cent for nine consecutive years. Chief executive Alison Cooper has promised annual dividend increases of at least 10 per cent ‘over the medium term’, suggesting management confidence that dividend increases can continue to be delivered.
224.6p, 5.8 per cent
Vodafone’s thin dividend cover is a cause for concern. However, chief executive Vittorio Colao is confident improved cash generation will enable the company to pay higher dividends in coming years. That said, the low level of cover does leave investors exposed; maintaining the dividend in the event of a profits shock could prove difficult.
Royal Dutch Shell
2496p, 5.8 per cent
Higher oil prices have boosted Shell’s balance sheet, and cashflow now easily covers dividends and capital spending. The firm’s dividend cover is tight, but an oil price of more than $60 a barrel should support dividend growth. The payment of its dividend in shares during the oil price downturn diluted its existing stock. However, the reintroduction of an all-cash dividend and launch of a share buyback scheme to offset the dilution suggest the firm is more stable.
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