A base rate cut by the Bank of England’s monetary policy committee now looks baked-in following today’s weak UK manufacturing data, making life even harder for savers. But enough doom and gloom, this is a bumper time for dividends with a host of top UK companies on yields of 4% to 5%. That’s far higher than the return on cash and bonds. Low interest rates for longer make the following three dividend winners look even more irresistible.
Taste the difference
The big supermarkets have had a tough time and J Sainsbury (LSE: SBRY) is no exception. It has held on to market share far better than beleaguered rivals such as Tesco and WM Morrison but sales have slipped under pressure from Aldi and Lidl, as shoppers eke out their stagnating wages. Still, Sainsbury’s has been my pick of the top supermarkets, largely because its more upmarket customer base has felt the squeeze less than the rest of the population.
Food inflation is hurting but Sainsbury’s still posted like-for-like transaction and total volume growth in its most recent quarter, with new store openings helping to boost total retail sales by 0.3%. Let’s not get too excited, groceries remains a tough sector and all eyes are now on how boss Mike Coupe will integrate his shiny new Argos purchase, which will make or break his tenure.
Trading at 9.4 times earnings the price is reasonable, if not quite Aldi-cheap, given that earnings per share (EPS) are forecast to fall 10% in the year to March, then revive a modest 2% thereafter. But the real attraction is the yield, a forecast 4.5%. That’s currently nine times base rate. Next month, it could be 18 times.
Right Royal investment
Royal Mail (LSE: RMG) has just posted solid Q1 results showing group revenue up 1% as its overseas GLS parcel business continues to perform well, with volumes and revenues rising 13%. It still has a large restructuring task ahead of it, as the letters part of the business continues to decline and UK revenues dip 1%.
Markets took the news in their stride: nobody is expecting Royal Mail to shoot the lights out in a tough and competitive market. But the share price is up 16% in the last six months and EPS are forecast to rise 1% in the year to next March, and 4% the year after. The stock should deliver a forecast yield of 4.5% and divided cover is strong at 1.9. Trading at 12.22 times earnings, this isn’t bargain basement but remains nicely priced.
Phone home
Telecoms giant Vodafone Group (LSE: VOD) published its Q1 update statement today bolstered by growth in India and the Middle East, and healthy demand for 4G data. Revenue rose 2.2% over the period, slightly better than expected, and even its key European markets are looking brighter, important given that they generate around two thirds of sales.
The biggest worry is the UK, with service revenues falling 3.2% and mobile service revenue down 3.6% as usage patterns change. Brexit is a worry, threatening both domestic UK demand and key eurozone markets in Germany, Italy and Spain. But there are also grounds for confidence as Vodafone rolls out its mobile, broadband and landline bundles across the continent. Forecast EPS growth of 29% to March and 18% the year after offer another boost, and nobody is complaining about its 5.1% yield.