Many top FTSE 100 companies are currently offering dividends well above the interest you can get from cash or bonds — and with the potential for real future income growth.
In this series of articles, I’m assessing how some of your favourite blue chips measure up as potential income-generators, by looking at dividends past, dividends present and dividends yet to come.
Today, it’s the turn of taxpayer-owned bank Royal Bank of Scotland (LSE: RBS) (NYSE: RBS.US).
Dividends past
RBS has made an annual statutory earnings loss since the financial crisis, and shareholders have suffered a long dividend-less period. Of the Footsie’s ‘Big Five’ banks, RBS fell hardest and has been the longest dividend offender, having last paid a cash dividend in May 2008.
Dividends present
A year ago, some analysts were anticipating RBS being able to resume paying dividends for the year ending December 2013, albeit at a token level. The consensus at the time was 0.36p a share.
RBS announced its half-year results during August, and the company said:
“RBS has now reported the first two consecutive quarters of overall profit since 2008. The prospects of attractive future profits and dividends to RBS shareholders are much improved.”
In third-quarter results during November, management said it was in “advanced discussions” with the UK government about buying out an instrument called the Dividend Access Share, part of the taxpayer-funded bailout package that serves as a bar to the bank paying dividends.
Nevertheless, those analysts who had been forecasting dividends to resume for the 2013 year pushed back their forecasts to 2014. As things stand, no dividend is expected to be announced when RBS releases its 2013 final results on 27 February.
Dividends yet to come
Dividend forecasts for 2014 and 2015 are as follows:
| Year end | Current forecast | 6 months ago | 1 year ago |
|---|---|---|---|
| 31 December 2014 | 0.67p | 1.74p | 3.00p |
| 31 December 2015 | 4.18p | — | — |
At a current share price of about 370p, the 2014 forecast gives a yield so small as to be negligible. Even going out to 2015, the prospective yield is just 1.1%.
RBS still has a lot more legacy issues from the financial crisis to work through than its peers. There’s a risk that the resumption of dividends could yet be pushed further back than current expectations as a result.
All in all, then, RBS should hold zero interest to dividend investors, particularly as there is immediate high income on offer elsewhere in the banking sector — notably from global titan HSBC Holdings, which is on a forecast yield for 2014 of around 5%.