Diverse Income Share Discussion Threads

[adrian j boris] 14/10/2019 21:00

Top UK dividend payers
Rank Company
1 HSBC (HSBA)
2 Royal Dutch Shell (RDSA)
3 Rio Tinto (RIO)
4 BP (BP)
5 Royal Bank of Scotland (RBS)
Subtotal £11.9bn
% of total dividends 33%
6 BHP Group (BHP)
7 British American Tobacco (BATS)
8 Glencore (GLEN)
9 National Grid (NG)
10 BT (BT)
11 Vodafone (VOD)
12 GlaxosmithKline (GSK)
13 Astrazeneca (AZN)
14 Lloyds (LLOY)
15 Anglo American (AAL)
Subtotal £10.1bn
Top 15 grand total £22bn
% of total dividends 62%

[waldron] 07/10/2019 06:35

the motely fool



Forget the State Pension or a Cash ISA! I’d live off BP and Royal Dutch Shell’s 7% yields

Harvey Jones | Sunday, 6th October, 2019 | More on: BP RDSB
A golden egg in a nest
Image source: Getty Images.

The State Pension isn’t enough to give you a comfortable retirement and saving money in a Cash ISA won’t help much, as most now pay less than 1% a year. FTSE 100 oil giants BP (LSE: BP) and Royal Dutch Shell (LSE: RDSB) look far more tempting as they both yield nearly 7% a year. Both are worth buying – just make sure you understand the risks as well as the rewards.
Crude facts

It already seems an age since the oil price surged in the wake of the drone attacks on Saudi Arabia Aramco facilities, which led to dire predictions of $300 oil. Crude has now fallen to a two-month low, with Brent comfortably below $60, as Saudi officials report that production has been restored to pre-attack levels.

The BP share price is sliding as a result, and so is Shell. Soft global economic data isn’t helping, while US crude stockpiles have just registered a third straight weekly climb.

With supply continuing to outweigh demand, BP is down almost 20% this year, while the Shell share price is off more than 15%. They have disappointed over five years as well, with BP up just 10% in that time, and Shell down 4%. The FTSE 100 rose around 15% over the same period.
Dividend income heroes

The good news is that both now offer healthy dividend streams, regardless of where their share prices go. BP currently yields 6.7%, with cover of 1.2, while Shell yields 6.6%, covered 1.5 times. These are comfortably above the FTSE 100 average yield of around 4.5%, although Shell has struggled to raise its dividend lately.

BP and Shell are also trading at a discount, 12.3% and 12.7% times earnings respectively, against the FTSE 100 average of 17.17 times. These look like bargain prices.

There are so many companies on the FTSE 100 in this position, which makes now a great time to pick up dividend stocks and hold them for the long term to give your retirement plans a real boost. Share price growth on top would be a bonus.
Climate challenge

After years of denial and delay, big oil now has to face up to the challenge of climate change, as solar and wind prices tumble, and motorists switch on to electric cars.

BP is steadily remodelling itself, exploring everything from car charging networks to solar plants to biofuels. Some of these could deliver lucrative new income streams, others could swallow huge sums of cash and sink. Relying purely on oil and gas is no longer an option, so the challenge has to be met. Otherwise the backlash could be brutal.

Shell plans to double the amount it spends on green energy to £3.2bn a year. There is a long road ahead, though.
Major investments

Shell remains the largest stock on the FTSE 100 with a market cap of £185bn; BP is in fourth place with £99bn. The world still runs on oil, even if we would rather it didn’t.

BP is mostly over the Deepwater disaster and its earnings are forecast to rise 10% this year and 15% next. Shell looks patchier, with a forecast 16% drop in earnings this year, followed by a 24% rise in 2020. I still think both still merit a place in a well-balanced portfolio, and should keep your retirement income flowing nicely.

[jeffian] 30/9/2019 15:56

I do hate to see the term “unearned income” creeping back into use (even if it was in the Observer!). This heavily emotive description of investment income, interest, rents etc is the starting point for those who would seek to differentiate between different forms of income, usually to justify higher tax rates such as the 'unearned income surcharge' of the 1970's in which 15% was added on top of other tax bands which at that time resulted in a marginal tax rate of 98%. Far from taxing various forms of income differently, I'm a proponent of a Flat Tax Rate on all income and profits from whatever source, but that's a discussion for another day on a different thread. Meanwhile, as a fairly recent recipient of the State Pension, I tremulously wait to see how Mr. McDonnell plans to tax that "unearned income"!

[waldron] 27/9/2019 13:46

Risks:

Lower oil and gas prices will impact cash flow generation

Regardless of how the company operates, lower oil and gas prices will have a negative impact on the company's cash flows and investor sentiment. Having said that, it is important to note that the company has a remarkably consistent history of maintaining and growing dividends across oil & gas cycles. As can be seen from the chart below, the company's dividend history has not at all mirrored volatility in oil prices. The company achieves this by levering the balance sheet during difficult times to maintain dividend and delivering during better times to reinstate the dividend buffer.

Source: Yahoo Finance, Blue Harbinger Research

Macro slowdown could impede future asset sales

The company's plans to return cash flow to shareholders also rely on its ability to prune its portfolio of assets by $20 billion over time. A macro slowdown that leads to drying up of capital or reduced valuation will have a negative impact on the divestiture activity at the company.
Conclusion:

Royal Dutch Shell's 'B' shares, at a 6.4% dividend yield, present an attractive risk-reward for income-oriented investors. We've ranked RDS.B shares #4 on our list of top big safe yields in the energy sector (ahead of BP at #5) because the company has consistently grown dividends to shareholders despite the swings associated with oil and gas prices via a focus on improving efficiencies, asset portfolio, and careful use of leverage. We expect the company to continue returning cash to shareholders in the form of dividends and buybacks in the near to medium term.

All of our Blue Harbinger portfolios have continued to perform very well in terms of both attractive income and continuing price appreciation, and we believe they are attractively positioned going forward. As our members are aware, we have been taking advantage of recent volatility to deploy capital to highly attractive opportunities.

[leonardius] 03/9/2019 15:08

The DIVI company factsheet say down from 1.3% to 0.9%, takes it outside the top 20 as at 31.07.19

[andyj] 11/8/2019 03:10

The large put position in the FTSE is no longer listed in the top holdings anyone know if it has been called?

[andyj] 02/8/2019 15:46

I am amazed to read they are celebrating beating two out of three benchmarks while the share price has fallen continuously.

[the grumpy old men] 17/6/2019 10:24

MONEY OBSERVER


Vodafone dividend cut highlights need for new approach to income investing

The telecoms company’s dividend cut ended a two-decade run of rising payouts. Chris McVey suggests three key issues for equity income investors to consider.
June 17, 2019 by Chris McVey
Share on:

As you may have read last month, Vodafone announced that it was cutting its dividend, despite the board having recommitted to it six months earlier.

Vodafone’s cut ends a two-decade run of rising payouts. It also highlights three important issues that equity income investors need to keep in mind.

The good news is that investors can mitigate this risk by diversifying the types of income funds they hold, and being aware of three key issues.

Vodafone dividend cut: which UK shares might be next?

1) High dividend yields can mean low dividend cover

If you hold a stock for its dividend, you want to be confident that the company can keep paying it. Ideally you want to see dividend cover of 2.0 or above, which means profits are enough to cover the payout twice over.

In the case of Vodafone, dividend cover was less than 1.0 just before the announcement of its dividend cut. This is clearly unsustainable over the long term, so we shouldn’t be too surprised that Vodafone acted as it did.

What it should draw our attention to is the fact that among the big dividend payers, the average dividend cover is significantly below that 2.0 mark. If we look at the 10 FTSE 100 companies that pay the most money out to shareholders, their average dividend cover is less than 1.5.

If we look at the top 10 FTSE 100 companies by dividend yield, the figure is just 1.2.
2) Popular income stocks can have below-average dividend growth

Many of the big blue-chip dividend payers have reached a stage in their maturity where earnings and dividend growth have slowed.

If we take the top 10 companies by total dividend payout and strip out BP and Royal Dutch Shell (because oil price moves make their earnings more volatile), we see that on average their earnings and dividends are expected to grow more slowly than the FTSE All-Share average over the period from the end of 2017 up until 2020.
3) Concentration risk

In the run-up to its dividend cut, Vodafone was one of the FTSE 100’s top 10 dividend payers, by both dividend yield and by the total amount that it paid to shareholders.

In fact, the top 10 biggest dividend payers accounted for more than half the dividends paid by FTSE 100 companies in 2018.

Now consider the fact that three-quarters of traditional income funds hold those stocks, and you’ll see why equity income investors need to have an eye on concentration risk. They may want to consider adding a different type of fund to their portfolio for diversification.
A different approach

It would be complacent to assume that Vodafone will turn out to be an isolated case. So where can income investors find diversification?

Last December, we launched the FP Octopus UK Multi Cap Income Fund, which invests in companies across the entire market cap spectrum, drawing on our longstanding smaller companies’ expertise.

This approach has allowed us to seek out companies with sustainable dividends, which have above-average earnings and dividends growth, and that tend not to appear among the holdings of more traditional equity income funds.

The experience of Vodafone shows that while a household name and impressive past performance may feel comforting, investors need to consider diversification, particularly if income is important.

Chris McVey is a senior fund manager and head of the FP Octopus UK Multi Cap Income Fund, Octopus Investments.

[andyj] 15/6/2019 03:33

Discount to NAV at all time high, 16% down on the year, share price now back to where it was 5 years ago. And we are paying for this terrible performance. I am struggling to find a reason to keep this in my portfolio.

[waldron] 10/6/2019 05:20

Conclusion

In conclusion, BP is part of the consortium that will be working to boost the production of Angola's Block 15 by approximately 40,000 barrels per day. This will have the effect of contributing to BP's production growth over the next few years. With that said, though, BP is well-positioned to deliver very strong production growth over the next few years. Indeed, its growth is likely to be among the strongest in the industry. This should result in forward earnings growth, although the stock may be a bit overvalued at the current price. BP does still boast a large and well-covered dividend, though, so there are certainly reasons to own the stock. Overall, BP could certainly be part of a growth and income portfolio.

[aleman] 04/6/2019 08:02

HYNS year-end update ahead expectations and about 25% up on last year so should see an increased dividend, taking yield over 4%?

[la forge] 30/5/2019 08:15

Total will distribute a dividend of 2.56 E per share
Finance Circle • 29/05/2019 at 16:45

(CercleFinance.com) - Total announces that its general meeting today has adopted the resolutions approved by the Board of Directors, including the distribution of a dividend of 2.56 euros per share, up 3.2% by compared to the previous year. Total and Shell are processed about 9.7 times above OMV (8.1 times), when Repsol displays a ratio of only 7.5 times.

[sarkasm] 28/5/2019 12:59

Tuesday 28 May 2019 11:08am
Interactive Investor Talk
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Vodafone dividend cut: which UK shares might be next?
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Interactive Investor Talk Contributor
Vodafone dividend cut: which UK shares might be next? (Source: iStock)

By Tom Bailey from interactive investor.

Vodafone's cut might be a canary in the coalmine for FTSE 100 shares.

Over the past year the market has increasingly cooled on Vodafone (LSE:VOD). The company has a long list of problems, including the high cost of 5G investment, being squeezed by competition on the continent and high levels of debt. The company's share price fell by roughly 30% between April 2018 and April 2019.

As a result, the company's dividend yield shot up to a seemingly generous 9%. Now, however, reality has caught up with the company's payout level. On Wednesday 15 May, Vodafone announce its dividend would be cut by 40%, giving it a new yield of around 6%.

According to Simon McGarry, senior equity research analyst, Canaccord Genuity Wealth Management: "The red flags have been there for all to see - the dividend yield was dangerously high, low dividend coverage (ratio of earnings to dividends) and dividend growth had slowed - last year growth was only 2% and in its recent statement, there was no growth at all."

The share has consistently featured on our Dividend Danger Zone screen since its creation in 2016.

A number of high-profile investors had previously grown concerned about Vodafone's position. Mike Fox, manager of Royal London Sustainable Leaders fund recently told Money Observer that he had sold his stake in the company. Similarly, Robin Geffen, chief executive of Neptune Investment Management, sold out of Vodafone last year.

Vodafone, however, isn't likely to be the only major UK company seeing a dividend cut in the coming months. The dividend payouts for a number of FTSE companies currently look perilous. According to Geffen:

"Vodafone's announcement should be viewed as a canary in the coalmine moment for UK equity income investors"

Geffen fears that many other supposedly "safe" dividend-paying companies are also likely to face a cut, citing falling levels of dividend cover as his key concern.

He adds: "We would put the tobacco majors Imperial Brands (LSE:IMB) and British American Tobacco (LSE:BATS), BT Group (LSE:BT.A) and the major utilities stocks in that category." British American Tobacco currently has a dividend cover of 1.35 times, Imperial Brands 0.87 times and BT 1.47 times.

As a rule of thumb, shares with a dividend cover score of above 2 are considered reliable dividend payers.

Meanwhile, a number of companies on our Dividend Danger Zone screen all have dangerously low dividend covers.

The worst offender is Stobart Group (LSE:STOB), with a dividend cover of 0.5 times. That means that half of its dividend is being paid for with borrowing. The infrastructure and support services company already cut its dividend last December, citing a lack of cash. Further cuts, it seems, may still be ahead.

Hammerson (LSE:HMSO), the property group, is also on the screen, with a particularly high net debt to EBITDA ratio of 10.9 times.

This was one of the reasons it entered our screen in March. At the time, McGarry noted that the company was attempting to sell off assets to cut its debt burden.

But, he warned: "Hammerson might struggle to deliver its strategy to dispose of retail parks in a bid to reduce leverage, which is too high at 40%+ loan-to-value." The company's dividend cover is currently 1.1 times.

Also on the screen is SSE (LSE:SSE), with a dividend cover of 1.2 times. Similarly, Geffen is bearish on the dividend prospect of the utility sector as a whole, noting his is the only IA UK Equity Income Fund to have 0% exposure to utilities. The sector has an average cover of 1.29 times.

This article was originally published in our sister magazine Money Observer.

[maywillow] 28/5/2019 12:28

cheers guys and gals

thanks aleman, in the header it goes

a real to get decent info what all the infantile disruptors and hatemongers out there

have a great week

[the grumpy old men] 28/5/2019 10:44

Cheers Aleman

perhaps maywillow could put in the header if and when about

shell no1

[carlsagan1] 21/5/2019 21:26

Does anybody have experience with brokers X-O(by jarvis) or iweb-sharedealing(by halifax).

ii have increased theres fees again(from £90 a year to now £120/£240), I think its time I finally left them.

Both x-o and iweb have a simple flat trade fee of £5.95 per trade and have no monthly/yearly admin fees or inactivity fees.

any1 use them?