3 great dividends: Lloyds Banking Group plc (6.8%), Royal Dutch Shell plc (7.3%) & Direct Line Insurance Group plc (5.9%)

Alan Oscroft — Thu, 12 May 2016 14:50:38 +0000

With the FTSE 100 still in the doldrums at 6,174 points, having lost 11% over the past 12 months and gaining only 5% over five years, what’s the best way to take advantage?

Look for the best dividend yields, I say, because as well as finding companies that have the cash to provide their shareholders with income, it can also highlight those whose shares are unfairly depressed.

Solid liquidity

I reckon Lloyds Banking Group (LSE: LLOY) offers one of the best, with a 6.8% yield forecast for the current year. I do feel a little caution over the rate of recovery of Lloyds’ dividend after the bank was first allowed to start handing out cash in 2014, and I wonder if a slightly more conservative approach might have been better for the long term.

But the speed at which the bank has hiked its dividends does suggest it is confident in the strength of its balance sheet, and its liquidity ratios all look solid. The dividend would be covered 1.7 times by forecast earnings this year, and the mooted rise to 7.9% next year would see 1.5 times cover — and I really wouldn’t like to see cover drop any lower than that.

The high yield is partly down to Lloyds shares having fallen 25% over the past year, to 66p, and that gives us a forward P/E of only 8.5 based on 2017 forecasts — which I think makes Lloyds’ dividend a very cheap one.

Oily cash

The big question hanging over the dividends at Royal Dutch Shell (LSE: RDSB) is whether they will be maintained, especially as this year’s forecast 7.3% yield would be nowhere near covered by earnings.

But with EPS set to bounce back in 2017, the 7.2% yield currently predicted for that year would be just about covered. And with rival BP insisting it will keep its annual payments going, I doubt Shell will want to break ranks. In fact, Shell has already announced a first-quarter dividend of 4.55p per share, and if we see the second payment maintained in July’s interim results I think that will raise confidence for the full year.

And the further oil prices recover, the more confidence we’ll surely have — Brent Crude is already at $48 per barrel, and how long will it be before it breaches the $50 level? I’m hoping Shell’s yield will drop, but only when Shell shares recover from their current price of 1,759p.

Insurance winner

If you harbour any doubts about the insurance sector’s ability to generate cash, take a look at Direct Line Group (LSE: DLG). Last year’s dividends were boosted by a special payment of 27.5p per share from the sale of the firm’s International division, but even without that we saw a total yield of 5.5% on the company’s year-end share price.

Direct Line has a policy of growing its regular dividends ahead of inflation, and also of paying back surplus cash in the firm of special dividends. This year we have a total yield of 5.9% forecast, on the current share price of 375p, and the City is expecting that to rise slightly to 6% in 2017 — and it looks to me like the cash should be able to support decent special dividends into the future quite nicely.

Direct Line shares appear to have had a pretty erratic 12 months, having lost 3.5% so far in 2016. But that’s been in line with ex-dividend dates, and so the reality is smoother than it looks. Right now, we’re looking at a forward P/E of around 13, which is relatively high in the insurance business — but for Direct Line’s levels of dividends, I’d call it good value.

The post 3 great dividends: Lloyds Banking Group plc (6.8%), Royal Dutch Shell plc (7.3%) & Direct Line Insurance Group plc (5.9%) appeared first on The Twelfth Magpie.

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Alan Oscroft owns shares of Lloyds Banking Group. The Motley Fool UK has recommended BP and Royal Dutch Shell. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

What Should We Expect From Barclays PLC, Direct Line Insurance Group PLC And Taylor Wimpey plc Results Tomorrow?

Alan Oscroft — Mon, 29 Feb 2016 14:09:45 +0000

As we get into March, we’ve got some potentially tasty full-year results coming up — with three key ones on 1 March itself.

After Lloyds Banking Group pleased investors with its much-expected dividend, plus an extra unexpected special payment, will Barclays (LSE: BARC) do anything to perk up its shareholders? Barclays shares have actually ticked up a little in the past few days, presumably in anticipation, and in line with improving banking sentiment — but we’re still looking at a 40% fall since the end of July 2015, to today’s 171p.

Current expectations suggest a 22% rise in EPS for the year just ended December 2015, with forecast rises of 10-14% penciled in for the next two years. That puts the shares on a P/E of 8.2 for 2015, dropping as low as 6.3 by 2017. And, remarkably for a FTSE 100 bank, Barclays shares are on PEG ratios of between 0.4 and 0.7 — and values that low are usually seen at smaller-cap high-growth companies.

With dividends set to yield 3.8% and growing, I’ve considered Barclays as cheap for quite some time, and I’m expecting upbeat results.

Cheap insurance

Shares in Direct Line Insurance Group (LSE: DLG) have had a better time recently with an 8% gain in 12 months to 388p, but it’s been erratic. And though there’s a 20% EPS rise predicted, a P/E of close to 13 suggests there’s already a fair bit of that built in to the share price.

After the sale of its international division, Direct Line made a special cash payment to shareholders of 27.5p per share, and analysts are guessing at a total of around 41.5p for the whole year, which would yield 10.7%. The problem going forward is that the cost of winter storm damage, estimated at between £110m and £140m, will hit the bottom line, and the mooted 19p (4.9%) dividend for 2016 would only be around 1.5 times covered by forecast earnings — and that could be stretching it a bit fine.

I think Direct Line is still a solid investment, but I see better insurance bargains out there.

Soaring houses

Housebuilding has been a massive post-recession success, with Taylor Wimpey (LSE: TW) one of the bigger winners with a 355% share price rise over the past five years, to 188p. But even after such a climb, expectations for the year just ended put the shares on a relatively modest P/E of 12.5 — with forecasts dropping it to 11 this year and 10 next. On top of that, forecast dividends stand at 5.2% and they’re rising strongly.

Is that optimism well placed? Well, the firm’s year-end trading update suggests it is, with chief executive Pete Redfern speaking of “building more homes than at any point in the last six years and delivering a record operating profit margin of over 20%“. Completions rose 7% to 13,341 homes, with a 9% average selling price rise to £254,000.

With a record year-end order book up 27% on the previous year, I see plenty still to come from Taylor Wimpey.

The post What Should We Expect From Barclays PLC, Direct Line Insurance Group PLC And Taylor Wimpey plc Results Tomorrow? appeared first on The Twelfth Magpie.