Everybody needs a few income machines to keep their portfolio ticking over. Here are three you can’t afford to ignore.
GlaxoSmithKline
Pharmaceuticals giant GlaxoSmithKline (LSE: GSK) has been called an income machine for as long as I can remember and despite the odd glitch it keeps pumping out the dividends. The share price has also impressed lately, growing 20% in the past three months, which has knocked the yield to 4.81%. Given that this is almost 20 times the current base rate, it seems churlish to complain.
Glaxo’s 4% increase in turnover over the second quarter (at constant exchange rates) and 16% leap in core earnings per share (EPS) satisfied markets. Key to the company’s long-term prospects are sales from new products and here the news is good, as they now account for 23% of total pharmaceutical sales, offsetting continuing declines in Seretide/Advair. The dividend has been frozen at 80p for several years but is still a tonic in today’s low yield world.
Royal Mail
Royal Mail (LSE: RMG) is a relatively new income play but looks set to keep churning out the dividends for years to come. The existential question is whether its parcels business can expand fast enough to overcome the inevitable decline in the old-fashioned letter. Its latest trading update showed a 1% rise in group revenue, offsetting a 1% decline in UK revenues, exciting nobody either way.Â
Similarly, a 2% rise in parcels volumes and revenues had to be judged against the 2% drop in UK addressed letter volumes and 3% drop in letter revenues. Double-digit growth in Europe suggests Royal Mail could deliver some excitement but the general message is ‘slow and steady goes’, amid challenging economic seas. This impression is confirmed by forecast EPS growth of 0% until March 2017, followed by 3% in 2018. But a forecast dividend of 4.7% is attractive and healthy cover make this a good buy for income seekers, especially at 12.48 times earnings.
Vodafone Group
The phrase income machine could almost have been coined for mobile phone giant Vodafone (LSE: VOD). It continues to do what it has done for as long as I can recall, that to yield around 5% a year. Right now you get 4.87%, pretty much in range. The share price is up 44% over the past five years, which is solid for a company that few people buy for its growth prospects.
First quarter revenues grew 2.2%, although they fell 4.5% in reported terms on negative foreign exchange movements, as Vodafone reports in euros. It has made big strides in selling larger data bundles and fixed broadband services across its key markets, with a whopping 63% growth in data traffic across the quarter, plus an extra 5.7m on its 4G customer base, which has doubled year-on-year to 52.5m. Data revenues, however, aren’t rising at anything like that pace and despite rapid growth in Turkey and India, Europe continues to hold the business back. That said, forecast EPS growth of 38% in the year to March 2017 and 13% the year after is promising. By then the stock is expected to yield 5.1%, which is pretty much what you would expect.