Are Centrica PLC, Standard Chartered PLC And United Utilities Group PLC’s Dividends At Risk?

A carefully constructed dividend portfolio can provide you with a steady, reliable and hassle free income way into retirement. However, dividend payouts can be cut, sometimes without warning, which can be disastrous for any income investor.

The best way to avoid this scenario is to keep one eye on your dividend champions, annually assessing the sustainability of their payouts.

Unfortunately, after a quick assessment, it would appear as if the dividend payouts of Centrica (LSE: CNA), Standard Chartered (LSE: STAN) and United Utilities (LSE:UU) are likely to be cut.

No secret 

It’s no secret that Centrica is under pressure from both the government and customers alike. The company has made plenty of mistakes over the past few years. These mistakes, combined with the recent management exodus, have hit the company’s profits hard. 

Indeed, Centrica’s pre-tax profit fell from £1.25bn, as reported for 2012, to £0.95bn to 2013. What’s more, when Centrica publishes its half-year results this week, the company is expected to unveil a 32% fall in adjusted operating profit. Centrica’s North American arm is expected to suffer the most, with profits falling more than 60%. 

With profits collapsing, Centrica’s dividend payout will come under pressure, there is no doubt about that. At present the company yields 5.4%, with the payout covered around one-and-a-half times by earnings per share. Next year, City analysts believe that the company’s dividend yield will hit 5.6% covered 1.3 times by earnings per share.

But with Centrica’s profits set to slump by a third this year, the company could be forced to cut the dividend in order to save cash. 

Bad bank

After its recent profit warning, City analysts have started to turn negative on Standard Chartered’s dividend. 

The bank has stated that dividends to shareholders remain a key focus. Nevertheless, dividends as a percentage of net income will from 52% to an average of 44% over the next three years. 

On the other hand, some analysts have started to worry that Standard’s capital cushion could be wearing thin. The recently reported equity tier one ratio stood at 11.2%, above the key 10%, although as many City analysts have pointed out, this does not leave much room for manoeuvre — especially with a possible Asian credit crisis on the horizon. 

As a result, it is believed that Standard could cut its dividend payout in order to preserve capital. At present the bank offers a dividend yield of 4.1% covered more than twice by earnings per share. 

Water issues 

The utility industry is highly defensive and for this reason, many investors rely on the sector to help boost their portfolio’s income. United Utilities’ current dividend yield of 4% is covered 1.2 times by earnings per share and is set to rise inline with inflation over the next few years. 

However, United is still subject to the demands of water industry regulator Ofwat. The company just submitted a revised pricing and investment plan for 2015 to 2020 to the UK’s water regulator, which if approved will allow the company to raise customer prices to protect investment and the dividend.

Ofwat is expected to reply around the end of August. The regulator has already blocked an 8% price hike proposed by the country’s biggest water company, Thames Water, noting that the increase was not justified. If Ofwat demands that United cuts customer bills, as the regulator did during 2010, United’s payout could be cut by a double-digit percentage.