Today I am looking at the dividend prospects of three London-listed plays.
AstraZeneca
Although the problem of high-level patent expirations is likely to plague AstraZeneca (LSE: AZN) for some time yet, I believe the company’s revitalised R&D plans should deliver stunning returns in the years ahead.
Admittedly AstraZeneca didn’t show the greatest urgency in turbocharging its development schedule to offset the impact of generic competition across its key labels. And as a consequence the pharma giant is expected to endure additional earnings dips of 1% and 4% in 2015 and 2016 correspondingly, adding to drops that stretch all the way back to 2012.
But under the stewardship of CEO Pascal Soriot the business has significantly hiked investment in R&D — indeed, total expenditure registered at $2.6bn during the first half alone, up 24% from the corresponding 2014 period. And AstraZeneca’s plans to set up a cutting-edge lab network spanning Europe and the US should give its product pipeline further fuel.
Fresh earnings woes are expected to keep the dividend on hold around 280 US cents per share through to end-2015, but this still yields a handsome 4.4%. And I expect this to march higher again along with earnings further down the line.
Marks and Spencer Group
I believe British retail institution Marks and Spencer (LSE: MKS) is a solid selection for dividend searchers thanks to improving conditions on the UK High Street. Although the Rugby World Cup has been deemed the principal driver behind latest bubbly retail numbers — the ONS announced this week that total sales jumped 6.5% year-on-year in September — a 29th consecutive monthly rise can hardly be disputed.
On top of this, the company’s decision to revamp its M&S website should prove critical in powering sales higher, too — this week’s retail data showed internet activity leap 15.2% in September. And ‘Marks and Sparks” determination to stretch its multi-channel offering across Asia should deliver splendid returns thanks to increasing spending power in emerging markets.
These factors are expected to underpin earnings rises of 6% and 9% in the periods to March 2016 and 2017 correspondingly, in turn delivering further hefty dividend expansion. Indeed, payouts of 18.9p per share for this year and 20.6p for 2017 are currently anticipated, creating weighty yields of 3.8% and 4.2%. And I expect Marks & Spencer’s growth strategy to keep dividends moving at a rate of knots.
Greene King
Brewery chain Greene King (LSE: GNK) has been far more quiet than many of its rivals concerning the introduction of the ‘National Living Wage’ next April, legislation that will drive the minimum wage to £7.20 and to £9 by the end of the decade. But warnings that Greene King will be one of the industry’s biggest casualties of the changes has dented investor thirst for the stock in recent months.
Still, I believe this current weakness represents a fresh buying opportunity as Greene King’s solid sales outlook should offset the impact of rising costs. The East Anglian business saw like-for-like sales rise 1.3% in the 18 weeks to September 6, and by 1.9% in the final 10 weeks of the period. On top of this, volumes of its own-brewed brands like Old Speckled Hen and Abbot Ale jumped 1.7% despite tough comparatives related to last year’s FIFA World Cup.
With Greene King’s £774m purchase of Spirit Pub in June creating the country’s largest managed pub operator — the merged entity boasts some 3,100 sites — I believe the chain is in great shape to reap the rewards of increasingly-chunky drinker wallets. With earnings expected to rise 5% in the year to April 2016, by and 12% in 2017, Greene King is expected to fork out dividends of 31.3p per share and 34p for these years. As a result yields clock in at a weighty 4% and 4.3% for these years.