Today I am looking at the investment prospects of four big FTSE payers.
BHP Billiton
Despite the optimism of the City’s analysts, I am far from convinced by the dividend prospects of mining giant BHP Billiton (LSE: BLT). Fellow mining and energy plays Glencore and Vedanta Resources have been forced to can shareholder payouts in recent weeks, the impact of worsening supply/demand imbalances — combined with colossal debt piles — forcing the businesses into emergency cash-saving mode.
And I believe BHP Billiton is a strong candidate to follow a similar path. Sure, a projected dividend of 124 US cents per share for the year to June 2016 yields an impressive 7.8%. But investors should be aware that this figure dwarves anticipated earnings of 60 US cents. The business raised $6.5bn last month through the issue of hybrid bonds, but this is likely to prove nothing more than a short-term sticking plaster should commodity prices keep sliding, a very real scenario in my opinion.
Next
I have no such fears concerning the investment prospects of clothing retailer Next (LSE: NXT), however, as a steadily-improving UK economy boosts shopper appetite for the company’s textiles. Next saw sales rise 6% during August-October, speeding up from the 3.5% advance enjoyed during the previous six-month period. The London business now expects full-year pre-tax profit to clock in at £810m to £845m, up marginally from its prior prediction of between £805m to £845m.
Next is no stranger to furnishing the market with such upgrades, with the terrific performance of its Next Directory online operations complementing healthy in-store footfall. And the retailer has consequently been generous in terms of returning surplus cash to shareholders via special dividends.
For the years to January 2015 and 2016, the business is anticipated to shell out dividends totalling 398p and 415p per share respectively, yielding a very handsome 5% and 5.2%. And I expect payments to continue marching higher as revenues gallop.
Royal Mail
Growing demand at Next’s online operations should certainly play into the hands of letter and parcels giant Royal Mail (LSE: RMG). Indeed, the company is undergoing significant restructuring to meet the surging popularity of internet shopping, while the demise of competition like City Link is giving it dominance of the UK mail market. In addition, Royal Mail’s GLS pan-European division is also enjoying resplendent demand growth.
Earnings at the courier are expected to step steadily higher from next year as the vast costs of transformation filter out, providing dividends with further fuel to rise. A payout of 21p per share for the year to March 2015 is expected to advance to 21.8p in the current period, yielding a blockbuster 4.9%. And this figure advances to 5.1% for 2017 amid anticipation of a 22.6p dividend.
Soco International
Like BHP Billiton, I have little faith in oil producer Soco International (LSE: SIA) being able to meet current dividend projections thanks to intensifying oversupply in the fossil fuel market. The number crunchers expect the business to churn out a payment of 13.6 US cents per share for 2015, down from 15.58 cents last year but still yielding a stonking 5.1%. This figure falls to 2% for next year as a further payment cut, to 5.2 cents, is chalked in.
Expectations of dividend downgrades are unsurprising given the poorly state of the crude market, but I believe even these estimates could disappoint. Soco International fractionally upgraded its full-year production guidance to 11,000-12,000 barrels per day in August thanks to bubbly first-half output, but a 52% decline in revenues — to $116.6m — should come as a major worry to investors.
And with Soco International’s capital-intensive operations reducing the cash pile to $96.6m as of June, down from $284m a year earlier, the business has little wiggle room in the dividend stakes. I reckon the risks continue to outweigh the potential rewards at the black gold specialist.