This is a tough time for stock markets generally but these three FTSE 100 dividend favourites have nevertheless put in a solid performance this week.
National Grid
Wires, pipes and cables operator National Grid (LSE: NG) has long been my preferred utility play and this week’s full-year results reminded me why. Although the market gave a cool response to a 6% rise in adjusted operating profit to £4.1bn and the 10% rise in adjusted earnings per share of 63.5p, it was enough to satisfy my simple needs. As was the 1.1% hike in the recommended full-year dividend to 43.34p. That leaves this stock yielding 4.4%, covered a healthy 1.4 times, almost nine times the base rate.
National Grid is about as safe a play as you can get in the current market, given the heavily regulated nature of its business, and the stock has delivered fizzy capital growth as well, rising 55% in the last five years. Its success has even drawn “fat cat” accusations from Energyhelpline, which has slammed its record high profits of £2.9bn and UK margins of 37%, and called for Ofgem to enforce an emergency 25% price cut. Even success has its dangers.
Royal Mail
Markets were more downbeat about postal services firm Royal Mail (LSE: RMG), which posted a 33% drop in full-year profits to £267m this week. Again, markets were harsh, given that revenues before transformation costs actually rose 5% to £742m. Transformation costs were higher than normal due to the group’s cost avoidance and efficiency programme.
As chief executive Moya Greene pointed out, this was a resilient performance in challenging markets, with group revenue up 1%. There are further challenges ahead, with key parcel revenues rising just 1% in a competitive market, while the inexorable decline in letter volumes showed itself in a 3% annual drop.
These challenges are reflected in a valuation of 11.8 times earnings, while a yield of 4.5% still gives investors a reason to buy and hold. Royal Mail may be one to consider in the next stock market dip.
Vodafone Group
Telecoms operator Vodafone Group (LSE: VOD) hasn’t delivered much in the way of share price growth lately but at least the dividend still presses the right buttons, currently yielding 5.02%. This week’s final results showed full-year organic service revenues rising a steady 1.5%, even if currency headwinds converted that to a 3.5% loss. EBITDA rose by an underlying 2.7% to £11.6bn, with margins improving slightly to 28.3%. Perhaps the biggest treat was the 2% increase in the full-year dividend to 11.45p.
I’m glad to see the back of Vodafone’s costly Project Spring overhaul, with capex falling 6.5% to £8.6bn, and pleased to see it generate £1bn of free cash flow. The eurozone remains a drag, with sky-high youth unemployment hitting revenues, but at least India and Turkey offer faster growth prospects.
Vodafone is all about the dividend an, some may be worried about today’s cover of just 0.4, which is starting to look shockingly thin. Yet forecast EPS growth of 18% in the year to next March and 29% in the year to follow, should soothe some of their fears.