Today I am looking at three firms set to deliver chunky income flows.
Rio Tinto
Another set of economic numbers from China, another reason for the commodities sector to wring its hands with worry. Industrial production figures released overnight for October came in at 5.6%, slowing from 5.8% the previous month and matching March’s trough for the year. Factory activity has not languished around these levels since spring of 2009.
Accordingly, I believe investors should continue to give mining giants like Rio Tinto (LSE: RIO) an extremely wide berth. Chinese iron ore imports — a market from which the firm generates 70% of underlying earnings — ducked 12.3% last month to 75.52 million tonnes. And Rio Tinto’s other markets are also suffering from severe demand evaporation, too.
Despite these pressures, the City believes that Rio Tinto will raise last year’s dividend to 223 US cents per share in 2015, up from 215 cents last year and yielding a gargantuan 6.5%. I am not so optimistic, however — thanks to a predicted 49% earnings slip, the predicted payment is covered just 1.2 times, well below the safety watermark of 2 times.
With net debt continuing to creep up despite relentless asset sales and cost-cutting, and resources prices expected to keep struggling, I reckon investors should expect a dividend reduction sooner rather than later.
Barratt Developments
Housebuilder Barratt Developments (LSE: BDEV) greeted the market with yet another bubbly trading update on Wednesday morning. The London firm advised that forward sales leapt 20.7% in the 19 weeks to November 8, to £2.5bn, while average net private reservations rose 12.5% to 261 per week.
Barratt advised that “there is good consumer demand for our homes across the country, supported by a positive economic backdrop.” And the business has vowed to take on additional 250 graduates, trainees and apprentices to meet rampant homebuyer appetite. Indeed, Barratt advised that completions during July-December are on course to surpass those of the same period in 2014 as demand outpaces supply.
The City expects this strong backdrop to deliver a total dividend of 30p per share in the 12 months to June 2016, yielding a massive 5.2%. Barratt has seen its share price tank in recent weeks thanks to concerns over future margins. But I believe these fears are vastly overcooked, making the business a brilliant bargain for both income and growth hunters.
Kier Group
All eyes will be on building and engineering specialists Kier Group (LSE: KIE) tomorrow as the business releases its latest set of financials. The company advised in September that revenues leapt 14% in the year to June 2015, to £3.4bn, a result that drove pre-tax profit 17% higher to £85.9m. The market will be keen to see if the business has managed to maintain this splendid momentum.
As part of its ‘Vision 2020’ programme the company is aiming to double profits by the end of decade, achieved in large part by an ambitious expansion strategy that saw it snap up road network specialist Mouchel earlier this year for £265m.
And with a steadily-growing UK economy supporting Kier’s ability to grind out lucrative contract wins, I fully expect dividends to flow higher at the firm. Indeed, the number crunchers have chalked in a payment of 63.7p per share for the current period, up from 55.2p in fiscal 2015 and yielding a sizeable 4.7%.
