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2 FTSE 250 dividend stocks yielding 4%+ that I’d buy today

Peter Stephens — Wed, 25 Apr 2018 15:00:59 +0000

This year has seen the FTSE 250 and other global stock markets experience a period of high volatility. Much of this is due to the potential risks facing the world economy, as well as uncertainty in the minds of investors. Looking ahead, it wouldn’t be a major surprise if more volatility is yet to come, given the difficulties with inflation and interest rates which could hit the world economy.

As such, companies that are able to offer relatively robust dividend outlooks could become more popular. They may provide investors with a degree of certainty, which is what makes these two stocks worth a closer look right now.

Improving performance

Reporting on Wednesday was RDI (LSE: RDI), a real estate investment trust (REIT). The company’s performance in the first half of its financial year was positive, with its underlying earnings per share rising by 8.2%. This is ahead of its medium term growth target and was boosted by an increase in gross rental income of 2.1% on a like-for-like (LFL) basis.

The company has been able to improve the income-producing capabilities of its portfolio through the recycling of capital out of low-growth assets and into assets which offer stronger long-term potential. With an occupancy level of 97.3%, the company appears to have a solid outlook, which could help to boost dividend payments in future years.

In fact, RDI currently has a rather enticing income outlook. It has a dividend yield of 7.7%, which makes it one of the highest-yielding shares in the FTSE 250. With the stock trading on a price-to-earnings (P/E) ratio of 14 and offering a relatively robust growth outlook, it could become increasingly popular if stock market volatility remains high.

Dividend growth

Also offering strong income return potential within the REIT sector is Assura (LSE: AGR). The manager and developer of surgery buildings and healthcare centres has experienced a positive period in recent years when it comes to dividend growth. Shareholder payouts have doubled in the last four years, and this puts it on a dividend yield of 4.6% at the present time.

With further dividend growth of 10% per annum forecast over the next two financial years, the stock could provide its investors with a rising real-terms yield even if inflation returns to a higher level as Brexit talks progress.

Certainly, there are companies which offer stronger earnings growth and a lower valuation than Assura. Its P/E ratio of 23 may seem rather high, but due to its relatively low level of risk and its long-term growth potential it could be worthy of a premium valuation.

Therefore, from an income investing perspective it may become increasingly popular as investors continue to seek income-producing assets which offer a robust outlook in a volatile set of market conditions. And since interest rate rises could be slow and steady, its dividend potential may be worth paying for.

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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

2 top-performing investment trusts yielding over 6%

Ian Pierce — Thu, 26 Oct 2017 12:30:23 +0000

Befitting its goal to become the UK’s leading income-focused REIT, Redefine International (LSE: RDI) currently offers a hearty 6.2% yield to its shareholders. Certainly, part of the investment trust’s recent pivot towards maximising income returns instead of chasing returns from rising property valuations reflects a growing consensus that the UK commercial real estate market may be at or nearing a peak.

With that in mind its goal to increase gains from rental income makes sense as management can control this aspect of the business, income returns form a disproportionate portion of total real estate returns over the long term, and the plan should provide shareholders with lower but steadier returns due to long leases.

It’s less than a year into this pivot but already there are signs of success in the company’s full-year results for the year to August released this morning. Occupancy levels across its UK and German portfolio of shopping centres, office buildings and hotels remained incredibly high at 97.7% while like-for-like (LFL) rental income rose 3.7% during the period. Together with a 3% LFL rise in property valuations, this helped drive net asset value per share up by 3.5% to 41.4p, above the current share price of around 37p.

Investing in a REIT at this point in the business cycle, especially once such as Redefine with a 50% loan-to-value ratio, isn’t for the faint of heart. That said, the firm is making good progress in selling off mature properties at premium prices and transitioning to a high-yielding portfolio of assets with long leases and much greater revenue visibility.

An enviable record

A more unique high-yielding investment trust is the British Smaller Companies VCT (LSE: BSV), which makes investments in small, unlisted companies and when it disposes of its stakes, returns the bulk of the proceeds to investors via dividends. In the year to March, total dividends paid were a whopping 22p thanks to a special dividend of 16.5p but even the ordinary dividend of 5.5p represents a 7.4% yield based on today’s share price.

The company’s portfolio is quite diversified with only two companies making up more than 5% of the portfolio and its largest stakes in an aircraft lease broker, a business process outsourcer for law firms, and a maker of inflatable lifting and handling equipment for elder care. Investing in small, mostly unlisted companies means valuations can jump around from quarter to quarter, but over the long term, the company has been very successful.

At the time of the last valuation update in June, the company had returned an average of 11.5p annually to investors over the past five years, which is no mean feat. There are definitely risks involved with investing in a venture capital fund focused on small companies, but with a strong track record, more risk-hungry investors may find this one an interesting way to gain exposure to an industry often off limits to retail investors.

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Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

2 high-yielding investment trusts with millionaire-maker potential

Peter Stephens — Mon, 09 Oct 2017 12:53:19 +0000

Buying shares in real estate investment trusts (REITs) may seem to be a risky move given the uncertainty surrounding Brexit. Already, the decision to leave the EU has caused a degree of disruption for the wider economy and for commercial property. Residential property prices have also stagnated, with confidence among businesses, investors and consumers coming under pressure.

Looking ahead, further instability may be present in the property industry. However, with the potential for high yields, wide margins of safety and relatively resilient outlooks, here are two REITs that could offer highly attractive risk/reward ratios for the long term.

Further progress

Announcing an acquisition on Monday was modern primary healthcare facilities investor Primary Health Properties (LSE: PHP). It has contracted to acquire a standing let investment property in Scotland. Stenhousemuir Medical Centre will be acquired for £8.65m, with the property comprising of 2,450 square metres which is fully let to The Scottish Minister. The acquisition will increase PHP’s portfolio to a total of 305 assets with a gross value of £1.32bn and a contracted rent roll of £71.7m.

Looking ahead, the company has a strong pipeline of further acquisition opportunities. With the potential for a decrease in property prices caused by uncertainty surrounding Brexit, this could create a more inviting environment for M&A activity in the sector. As such, the company could enjoy improved trading conditions in that respect.

With a dividend yield of 4.3%, PHP offers an inflation-beating income return at the present time. With the company’s bottom line due to rise by 10% this year and by a further 7% next year, it could raise dividends still further and create an even more attractive income opportunity for its investors.

Margin of safety

Also offering an impressive outlook for income investors is European-focused REIT Redefine International (LSE: RDI). It has a range of assets in the UK and in Continental Europe which include hotels, shopping centres and retail parks. Clearly, there is a risk of downward pressure on its performance from Brexit, since the performance of retailers and hotels may deteriorate if consumer confidence continues to remain relatively weak.

Despite this risk, Redefine International could offer upside potential. Its exposure to Europe may allow it to benefit to some extent from a weaker pound, while it currently offers a relatively wide margin of safety. For example, it trades on a price-to-book (P/B) ratio of 0.95. This suggests that its share price could increase significantly without causing it to be overvalued.

Furthermore, the company has a dividend yield of 7.1% at the present time. While the resilience of its dividends may not be as high as some industries over the medium term, such a high yield suggests that the market has priced-in some uncertainty in this regard. As such, with a sound portfolio of assets which is relatively well-diversified and a wide margin of safety, Redefine International seems to be a good buy for the long run.

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2 dividend stocks I’d buy before it’s too late

Peter Stephens — Thu, 02 Mar 2017 08:28:38 +0000

Given that inflation is expected to reach 3% in 2017, buying shares with high yields could be a sound move. Clearly, the FTSE 100’s yield of around 3.6% may not be enough to offer a real-terms income return. So finding shares with significantly higher yields may be necessary. Given the index is trading near to its record high, this may not seem possible. However, here are two shares with exceptionally high yields which could be worth buying right now.

A struggling retailer?

Debenhams (LSE: DEB) is expected to record a fall in its bottom line of 14% this year and 9% the year after. Higher inflation could mean that consumers trade down to lower-cost options as they seek to adapt to what may be a new era of negative real wage growth. This means that mid-price point retailers such as Debenhams may see their sales fall, or else be forced to cut prices in order to maintain customer interest.

Due to this, the company’s dividend is unlikely to rise over the next couple of years. However, even factoring-in the forecast fall in profitability, its dividend is set to be covered 1.8 times by profit in the 2018 financial year. This suggests that shareholder payouts will be maintained, meaning Debenhams could continue to yield 6.4% over the medium term.

Although a share price fall cannot be ruled out, Debenhams trades on a price-to-earnings (P/E) ratio of just 8.6. That’s after the forecast fall in earnings and indicates that it offers a wide margin of safety. As such, even if the macroeconomic outlook deteriorates, the company’s shares may not fall significantly. And in the meantime it offers a stunning yield.

Property investment

Real estate investment trust (REIT) Redefine International (LSE: RDI) may be seen as a relatively risky buy at the present time. After all, it is focused on UK property, which could experience a difficult period thanks to Brexit. While in previous years, a growing economy, improving consumer confidence and foreign investment have caused the UK property sector to perform relatively well, that could all change.

Despite this, investing in Redefine could be a sound move. It has a price-to-book (P/B) ratio of 0.9, which indicates there is a wide margin of safety on offer. As such, even if its profitability comes under pressure, its shares may not fall significantly. It also yields 8.2%, which is among the highest yields in the FTSE 350.

Certainly, dividends are covered just 1.1 times by profit. But, with profit due to rise by 24% this year and by a further 5% next year, Redefine’s outlook may be more positive than that which is currently being priced-in by the market. Given inflation is set to reach 3% this year, the company could be one of the very few opportunities for investors to earn a real-terms yield of over 5% this year. Therefore, now could be the perfect time to buy it.

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Peter Stephens owns shares of Debenhams. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

3 FTSE 250 dividend stocks I’d buy in February

Alan Oscroft — Mon, 13 Feb 2017 12:51:55 +0000

A lot of people might think that the top FTSE 100 shares are best for dividends, while shares in the lower indices are all set for growth. But that’s often far from the case, and I’ve uncovered three shares in the FTSE 250 which look to me like they’re offering tempting cash.

Profit from property

Whichever way property prices go, there’s plenty of profit to be had from the rental business — and what better way to tap into it than a Real Estate Investment Trust (REIT)?

The one I have in mind is Redefine International (LSE: RDI), which is forecast to produce dividend yields of 8% this year and next. That’s high, even for a REIT which is obliged to distribute most of its profits via dividends, so is it sustainable?

Redefine carries more debt than most, mainly because of last year’s acquisitions, and a falling share price suggests investors might be getting a bit twitchy. With the price now at 39p, we’re looking at a P/E for August 2017 of 11, though that would drop to 10.4 on 2018 forecasts.

Interest rate rises could force Redefine to cut its dividend, and the forecast 3p per share for this year is lower than last year’s. But even if it is cut, I still see a long-term sustainable yield of possibly around 6%. And especially at today’s low P/E valuation, I see that as a tasty long-term prospect.

Cheap telecoms

Shares in beleaguered TalkTalk Telecom (LSE: TALK) have been on a slide of late, tumbling as low as 166p today from more than £4 back in July 2015. Disappointing trading that year was compounded by that embarrassing data hacking episode in October.

That’s brought the shares’ valuation down from silly P/E levels of above 40 to a more tempting 13 based on March 2017 expectations — and forecasts drop that as low as 10.6 by 2019.

The dividend is set to yield as much as 9% this year, dropping to around 7.5% next. That would only just be covered and must be seen as risky, but the company kept the annual payment going throughout its earnings slump, and there have been changes of late that suggest a good long-term future.

A senior debt issue in January was “multiple times over-subscribed,” a Q3 update sounded positive, and chairman Charles Dunstone will move to an executive position after CEO Dido Harding steps down in May.

Where there’s cash

Those little yellow PayPoint (LSE: PAY) terminals are used 15m times per year, sending the company to the forefront of the UK’s payment business and helping establish a healthy barrier to entry.

The share price has been erratic over the last few years, despite steady growth in earnings. Today, at 990p, we’re looking at a forecast dividend yield of 4.5% for the year to March 2017, rising to 5.2% by 2019. That’s not a massive yield, but it follows a progressive path — the City is expecting rises of around 7% per year, and the 45.3p predicted for this year would be 71% higher than 2012’s 4.4%.

Paypoint sold its mobile payments business in the current year to focus on its retail business, and December’s Q3 update reported nice progress. Retail net revenue grew by 6.7% after retail transaction volumes increased by 11.8%, and the company ended the quarter with £92.5m in net cash (from £49.6m in September).

That all adds up to what I see as a progressive cash cow.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK owns shares of PayPoint. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Why these 8% dividend yields may not last much longer

Roland Head — Thu, 24 Nov 2016 15:35:31 +0000

After years of low interest rates, profitable companies offering dividend yields of more than 8% are likely to attract some attention.

These yields won’t stay this high forever. Either the underlying dividend will be cut, or the share price will rise. In either case, the yield will eventually fall.The key to success in high-yield investing is learning how to recognise the potential winners.

I’ve taken a look at two mid-cap stocks with forecast dividend yields of more than 8%. Are these torrents of cash affordable, and can they be maintained?

Dividend greetings

Low-cost card retailer Card Factory (LSE: CARD) is a common sight on the UK’s high streets. It’s one of the few big retail chains to have reported steady growth and expansion over the last few years.

Card Factory shares currently trade on 12.5 times current year forecast earnings, with a colossal prospective yield of 9.8%.The reason for this is that this year’s forecast dividend of 24p per share includes a 15p special dividend. Without this, the yield would be about 3.7%.

Card Factory’s decision to pay a special dividend this year reflects the group’s strong cash generation. City analysts who cover the stock have pencilled in another special dividend for next year, giving a forecast yield for 2017/18 of 8.4%.

My view is that these special payouts are probably affordable. Card Factory’s operating margin is very high, at 23%. Cash generation is strong.

However, the growth outlook for Card Factory looks less certain. Although revenue rose by 4.8% to £169.2m during the first half, this was due to new shop openings. Like-for-like growth was only 0.2%.

Worryingly, Card Factory didn’t mention like-for-like growth in its Q3 trading statement. This suggests to me that like-for-like sales may have turned negative. We don’t know, because management chose not to tell us. For me, that’s a warning sign.

Although Card Factory’s dividend is tempting, I’d prefer to invest in a retailer with a more convincing outlook.

An unbeatable income from property?

Real-estate stocks often have above-average yields, but FTSE 250 firm Redefine International (LSE: RDI) is exceptional. This Real Estate Investment Trust (REIT) offers a prospective yield of 8.7%.

As a REIT, Redefine is obliged to pay the majority of its profits to shareholders in the form of dividends. But not all REITs offer such high yields. One thing that makes Redefine different is its relatively high level of debt.

The group’s loan-to-value ratio was 53.4% at the end of August. That’s fairly high for commercial property. In fairness to Redefine, one reason for this is that the group spent £490m acquiring a portfolio of properties from Aegon UK earlier this year.

This involved taking on £252m of new debt, but Redefine also refinanced much of its debt at the same time. The group’s average interest rate is now just 3.4%, and none of its borrowings are now due to mature until at least 2020. The group’s weighted average lease length is 7.8 years, so interest payments should now be well covered for the foreseeable future.

Management plans to reduce the LTV to 40%-50% over “the medium term”. In the meantime, my concern is that Redefine could be vulnerable if property prices fall. Overall, I’d say debt risks make Redefine a hold, rather than a buy.

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Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Are these 8% dividends to be snapped up, or avoided?

Alan Oscroft — Thu, 27 Oct 2016 13:54:45 +0000

Totting up your dividend income can be a great way to reassure yourself that, whatever happens to the UK after Brexit, you can still look forward to long-term financial comfort. If, that is, you actually invest in dividend-paying shares.

Do yields get any better?

All investors must surely take note of an 8% dividend, and that’s what’s on offer from Redefine International (LSE: RDI) today.

Redefine shares fell by a couple of percent this morning, to 42.8p, after the income-focused real estate investment trust released full-year results. The dividend for the year just ended provided a 7.3% yield, and that was made possible by a 17.6% rise in earnings available for distribution, while the company’s like-for-like portfolio valuation grew by 3.4%. And the share price drop is enough to boost the forecast yield for 2017 to just hit that 8% level.

Redefine has been paying cracking dividends for years, so why wouldn’t people want to snap up the shares?

One worry is that such big dividends might not be sustainable, and after the shock of the referendum result, fears have grown over the profitability of the UK’s property markets. And while Redefine CEO Mike Watters did say that “some uncertainty and volatility remains following the EU referendum decision“, I reckon the gloom is seriously overblown.

Redefine’s 2017 cash would be well enough covered by forecast earnings — the trust aims to pay its income out to shareholders, so we don’t expect to see high cover. And another factor that surely increases confidence in the sustainablity of the dividend is the firm’s move to introduce a scrip option. Depending on how many investors take it up, it would dilute existing shares a little, but it would reduce the need for cash a little.

More cash from property

More directly affected by the property sector slump is housebuilder Berkeley Group Holdings (LSE: BKG), whose shares have lost 28.5% since the day of the vote, similar to the rest of the sector. But forecasts have remained strong in the months since, and there’s a rise in earnings per share of around 45% on the cards for the year to April 2017.

Expectations for the following year suggest flat earnings, but that still leaves the shares on P/E multiples of only a little over six. The share price fall has pushed the predicted dividend yield up to 8.2%, and if earnings come out as expected it will be almost twice covered.

In its most recent trading update on 6 September, Berkeley told us it had entered the year with record cash due on forward sales of £3.25 billion, saying it has “good visibility over the next two years“. The firm repeated its guidance of £2bn in pre-tax profit over the three years to April 2018, and reiterated its strong dividend policy saying it expects “a further £10 per share to be paid evenly over the remaining 5 years to September 2021” — and that’s about as close to a guarantee of another 8% per year (on today’s share price) for the next five years as we can get.

Although there was some uncertainty in the immediate aftermath of the Brexit vote, Berkeley seems confident that its business is not going to suffer unduly. The City’s pundits are putting out a pretty strong buy consensus on Berkeley Group, and I can only agree.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended Berkeley Group Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Are these 7%+ yielders a risk too far?

Royston Wild — Fri, 12 Aug 2016 15:01:31 +0000

Fear over a cooling retail sector has smashed investor demand for N Brown Group (LSE: BWNG) in recent months.

And a constant stream of patchy retail-related gauges has done little to steady the nerves. Indeed, the latest Thomson Reuters/Ipsos consumer sentiment gauge released this week slipped to 49.2 in August from 49.4 last month. This is the lowest reading since early 2014.

Regardless of the impact of Brexit on shopper spending in the months ahead, however, I reckon N Brown’s niche lines should allow it to hurdle the worst of these troubles — demand for the retailer’s so-called ‘power brands’ like plus-size division Simply Be continues to chug higher. That’s not to say revenues won’t experience some trouble should the UK dive into recession, of course.

N Brown is expected to shell out a dividend of 14p per share in the year to February 2017, resulting in a bulky 7.4% yield. But investors should be aware that dividend cover stands at 1.6 times, below the widely-regarded safety benchmark of 2 times.

I remain bullish on N Brown’s long-term outlook, particularly given significant restructuring to bolster its online operations. Still, I reckon there’s scope for dividend forecasts to disappoint in the near future.

Solid foundations

Despite the patchy state of the construction sector, I believe Galliford Try (LSE: GFRD) — like N Brown — remains a solid stock pick for patient investors.

The full implications of June’s EU referendum are yet to be calculated, although the result is creating havoc for Britain’s builders. Indeed, data just today showed the construction sector slipping into recession for the first time in four years after the release of disappointing Q2 numbers.

Galliford Try itself has commented that “recent political events create a backdrop of uncertainty for the new financial year.” But I believe the robustness of the housing market — still supported by favourable lending conditions and a shortage of available properties — maintains the firm’s position as a dependable stock in volatile times.

Galliford Try is predicted to throw out a 99.7p per share dividend in the period to June 2017, leaving a market-mashing yield of 9.7%. Dividend cover stands at a meagre 1.5 times, but I believe the company’s robust balance sheet and healthy order pipeline leaves the firm in good stead to meet current forecasts.

On shaky ground?

I’m less bullish over the near-term dividend prospects of real estate investment trust (REIT) Redefine International (LSE: RDI), however.

As I mentioned, the possibility of significant headwinds for the British retail sector could have serious knock-on ramifications for Redefine International, even though the firm has embarked on massive portfolio restructuring to maximise returns. And potential problems in the commercial sector could cause further headaches should Britain slip into recession.

The property play is expected to generate a dividend of 3.3p per share in the period to August 2017, creating a yield of 7.6%.

This would fall in line with REIT rules that 90% of earnings must be distributed to shareholders, should current bottom-line forecasts be met. But should the bottom line suffer severe headwinds over the next year, I reckon this projection could find itself under heavy pressure.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Should you buy ~6% yielders Talktalk Telecom Group plc, Standard Life plc and Redefine International plc?

Royston Wild — Thu, 12 May 2016 14:44:46 +0000

Today I’m running the rule over three FTSE-listed dividend stars.

The good life

Insurance giant Standard Life (LSE: SL) has a terrific history of lifting the dividend year after year, and the City does not expect this trend to cease any time soon. Indeed, current projections suggest that last year’s reward of 18.36p per share will advance to 19.7p in 2016, and on up to 21.1p next year. Consequently Standard Life carries splendid yields of 6.2% and 6.6% for these years.

While dividend coverage falls below the safety benchmark of 2 times for this period — earnings cover predicted dividends just 1.4 times through to end-2017 — I have no fear that Standard Life will fail to meet these projections.

The insurer saw assets under administration rise 4% in 2015 to £307.4bn, with its broadening geographic exposure blasting new business volumes higher. On top of this, Standard Life’s ability to create boatloads of cash — underlying cash generation jumped 7% last year — should boost investor confidence still further.

Retail star

Supported by strong retail conditions in the UK and in Europe, not to mention the fruits of significant restructuring, Redefine International (LSE: RDI) has also been able to reward shareholders with meaty dividends in recent times.

Like Standard Life, Redefine’s dividend coverage also falls foul of conventional rules. Indeed, projected payouts are covered just 1.1 times through to the end of next year.

But with 90% of income required to be distributed to shareholders under real estate investment trust (or REIT) rules — and earnings at Redefine are expected to pound still higher — I believe the business should make good on current expectations for market-mashing dividends.

The number crunchers expect the bottom line to rise 7% in both 2016 and 2017, underpinning chunky dividend projections of 3.25p and 3.3p correspondingly. This allows Redefine International to boast weighty yields of 7% for 2016 and 7.1% for next year.

Payouts in peril?

Broadband and television giant TalkTalk (LSE: TALK) has been a long-standing favourite for those seeking annual dividend growth. But City estimates suggest this trend may be coming to a halt.

TalkTalk provided a reassuring update in Thursday business. News that profits more than halved in the year to March 2016, falling to £14m, doesn’t seem like any cause for celebration.

But this followed a massive cyber attack that saw the company shed around 100,000 customers during the third quarter. The ‘hard yards’ of promotional activity that TalkTalk has put in since then helped it to add 148,000 new customers between January and March this year.

And the City expects strong demand for TalkTalk’s low-cost services to push earnings higher again from this year, although a rising debt pile is expected to see the dividend locked around current levels through to end-2017.

A subsequent 6.1% yield may tempt many income chasers. However, investors should consider that earnings are expected to lag dividends again this year, and to marginally surpass the projected payment for 2017.

And with BT and Sky scrambling to grab market share, I believe TalkTalk’s payout forecasts could come under severe pressure.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Sky. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Should You Plough Into In 6%+ Yielders Anglo American plc, Vedanta Resources plc, Redefine International PLC And Admiral Group plc?

Royston Wild — Thu, 05 Nov 2015 10:02:43 +0000

Today I am looking at the investment cases of four London-listed income plays.

Anglo American

Regardless of the jumbo dividends currently forecast by the City, I believe investors should continue to give diversified miner Anglo American (LSE: AAL) short shrift. It is far too early to call a bottom to the commodity sector’s frightening descent, as economic data from China continues to disappoint and resources production continues to head skywards due to a lack of consensus across the mining community.

Anglo American is expected to address this poor market outlook by cutting 2014’s 85 US cents per share dividend to 68 cents next year, and again to 61 cents in 2016. Still, many investors will be drawn by the colossal yields of 8.1% and 7.3% respectively.

But with Anglo American expected to experience further double-digit earnings drops this year and next — creating extremely poor dividend coverage of around 1.2 times — and the business nursing a massive $13.5bn net debt pile, I reckon current payout projections could wildly miss these estimates.

Vedanta Resources

Naturally the same logic can be applied to metals and energy play Vedanta Resources (LSE: VED), which is also buckling under a hulking $7.5bn net debt mountain as well as collapsing commodity values. The company announced just this week that a 12% revenues decline during April-September caused EBITDA to slump 39%, to $1.3bn. As a consequence Vedanta decided against forking out an interim dividend.

Despite these problems the City remains convinced that Vedanta should keep on providing market-smashing dividends, even if an anticipated reward of 64 US cents per share for the year to March 2016 is expected to fall to 62 cents in 2017. Such projections produce massive yields of 8.5% and 8.1% correspondingly, but — like Anglo American — I cannot see how the business can afford to shell out such plump rewards in the current climate.

Redefine International

I am far more optimistic concerning the earnings — and consequently the dividend — prospects of real estate investment trust (REIT) Redefine International (LSE: RDI). The business reported last week that earnings available for distribution increased 13.6% in the 12 months to August 2015, to £44.4m, while cash advanced to £95.9m from £91.3m previously.

As well as benefitting from a bubbly British retail landscape, I believe Redefine International’s decision to hive off underperforming assets and boost its exposure to eurozone heavyweight Germany should also deliver rich returns. As the bottom line looks set to canter higher from here on in, Redefine International is expected to raise last year’s dividend of 3.25p per share to 3.36p in 2016, creating a delicious yield of 6.1%.

Admiral Group

With the car insurance market becoming ever-more favourable, I fully expect dividend flows at Admiral (LSE: ADM) to motor higher in the coming years. Indeed, market competitor Direct Line announced this week that car premiums leapt 8.4% during July-September, speeding up from the 5.9% rise in the previous three months and doubling the 4.2% growth rate punched during the first quarter.

And Admiral — which also operates the Diamond and Elephant banners — carries considerable clout when it comes to maintaining its customer base. Meanwhile, the company’s operations in Europe and the US are also improving rapidly and appear on course to deliver terrific long-term gains. For 2015 a reward of 96.8p per share is forecast, creating a bumper yield of 6%. And the yield is maintained at this level for 2016 thanks to expectations of a 97.2p dividend.

The post Should You Plough Into In 6%+ Yielders Anglo American plc, Vedanta Resources plc, Redefine International PLC And Admiral Group plc? appeared first on The Twelfth Magpie.

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