Today I am looking at whether Standard Chartered (LSE: STAN) is an appealing pick for those seeking chunky dividend income.
Dividends expected to accelerate with earnings
Standard Chartered has a terrific record of doling out massive yearly dividend increases to its shareholders, the firm having lifted the payout at a compound annual growth rate of 6.8% since 2009. However, the firm’s fragile capital position led the firm to raise the dividend just 2% in 2013, and many believe that a rights issue may be necessary to remedy the bank’s balance sheet woes.
Still, City analysts expect a backdrop of robust earnings expansion during the medium term — Standard Chartered is anticipated to punch growth of 26% and 10% in 2014 and 2015 correspondingly — to push dividend rises higher once again.
The bank is expected to shell out a dividend of 88.9 US cents this year, up 3.4% from 2013, while a 95.3-cent payout in 2015 equates to a 7.2% increase.
These projections create yields of 4% and 4.3% for 2014 and 2015 respectively. And such figures leave a forward average of 3.2% for the FTSE 100 in their wake, as well as a corresponding readout of 3.4% for the complete banks sector.
A risky medium-term payout pick
And at face value these dividend projections appear to be well protected by an expected earnings surge. Indeed, the predicted 2014 payout carries strong dividend coverage of 2.4 times prospective earnings — comfortably within the generally regarded safety terrain of 2 times or above — and for 2015 this figure climbs to 2.6 times.
However, investors should be concerned by Standard Chartered’s woes in certain Asian markets which could compromise future payouts. The company has been hit hard by problems in Korea in particular, where it was forced to swallow a £1bn goodwill impairment last year. And although revenues in Hong Kong, India and Africa all rose at double-digit rates in 2013, further signs of slowing activity in these regions could put paid to current earnings forecasts.
I believe that Standard Chartered is an exceptional way to latch onto lucrative long-term growth from emerging markets across Asia, the Middle East and Africa. But in the meantime economic turbulence in these areas — not to mention the effects of a precarious capital situation — could put dividend growth under considerable pressure.