Today I am analysing the dividend potential of three FTSE 100 giants.
Glencore
With prices across commodities markets continuing to sag, mega miners such as Glencore (LSE: GLEN) have seen their share price obliterated in recent times. Indeed, the London firm has sagged some 20% during the past three months alone, and I believe further heavy weakness can be expected as supply/demand imbalances across key sectors persist.
Still, many dividend diggers will find it hard to resist Glencore’s market-bashing dividend outlook. The metals and energy play is expected to hike last year’s 18-US-cent-per-share reward to 18.2 cents in 2015, producing a mighty yield of 4.8%. And this figure rises to 5% for next year amid predictions of a 19 cent dividend.
But with materials prices continuing to rattle lower — Brent’s steady slump has pushed it back towards multi-month lows below $57 per barrel this week, while bellwether metal copper is hovering worryingly close to six-year lows around $5,440 per tonne — I believe such projections could disappoint. This is worsened by dividend cover registering at just 1.1 times for this year, well below the safety marker of 2 times or above.
Bovis Homes Group
Conversely, I believe that the term “safe as houses” can be fairly applied to Bovis Homes’ (LSE: BVS) dividend outlook in the near-term and beyond. Fears continue to do the rounds over slowing house price growth, but rather than heading for the exits I believe this deceleration should soothe fears over a property price bubble.
And make no mistake: house prices look destined to keep on steadily rising as housebuilder activity fails to keep up with the insatiable demand of British homebuyers. With the Bank of England appearing increasingly-likely to keep rates on hold until some way into 2016 at the earliest; lenders stripping down the costs of their mortgage products week after week; and a lack of properties entering the market, this supply and demand difference is only likely to get worse.
Against this backcloth the City expects solid earnings growth to underpin further hefty expansion in the annual payout over at Bovis. Subsequently the construction play is anticipated to raise the dividend to 40.5p per share in 2015 from 35p last year, creating a chunky yield of 3.7%. And expectations of a 46.2p payment in 2016 push this readout to 4.2%.
Centrica
I am less convinced over the payout prospects of at energy giant Centrica (LSE: CNA), however, as the impact of rising competition — and efforts to keep regulator Ofgem onside — threatens to stymie revenue growth at its British Gas subsidiary. Indeed, just last week the London firm elected to shave another 5% off gas prices to halt the steady fall in its subscriber base, and follows the last major cut announced in January.
On top of this, Centrica also faces the double-whammy of a diving oil price and rising costs on profits at its Centrica Energy upstream division. This environment is failing to do the company’s balance sheet any favours, naturally, a particular worry seeing as the total net debt pile already stands at a colossal £5.2bn.
The City expects Centrica to cut last year’s 13.5p per share dividend to 12p in 2015, before a slight earnings uptick the following year drives the payment higher again to 12.4p. While these projections create decent yields of 4.3% and 4.4%, I reckon investors should still take these numbers with a pinch of salt as the threat of draconian regulatory action, combined with the rising trend of tariff-switching, could put dividends at Centrica under intensifying pressure.