We’re reaching the end of the year and looking back on a tumultuous one — who, in January, would have put money on the UK voting to leave the EU and Donald Trump winning the US presidential election? And we’re reconsidering our investment strategies in the light of all that, aren’t we?
The one strategy that will surely win out over the long run is seeking high-quality shares paying big dividends. Here are three that I think would be great homes for any leftover 2016 investment cash.
Pharmaceuticals rebound
AstraZeneca (LSE: AZN) has been beefing up its development pipeline after the expiry of key patents brought an end to some previous blockbusters. And while that’s been underway, the dividend has been held unchanged at an attractive level.
More optimistic investors had been hoping to see a return to EPS growth in 2017, though that’s now looking more like 2018. But flat earnings for 2015 and 2016 are actually better than the falls predicted, and the slow pace of drugs approvals means a pipeline turnaround isn’t an overnight thing.
The weak share price performance of the past two years has put the prospective dividend yield at a healthy 5%, way ahead of the FTSE 100 average. It’s covered by earnings, albeit not strongly, and the company will surely not cut it now, so close to the earnings turnaround point.
AstraZeneca looks like a great buy for progressive future dividends once earnings growth resumes.
Cash from insurance
If you want a cash cow, it’s hard to think of a better one than Admiral Group (LSE: ADM).
The motor insurance firm has been paying special dividends for years, handing out a total of 114.4p per share in 2015 for a yield of 6.9% on the year-end share price. The firm also told us it has distributed at least 90% of each year’s earnings as dividends since flotation, and that this year it will adjust its dividend balance. That means bigger ordinary dividends and smaller specials, with the same overall effect but perhaps lifting confidence a little.
Analysts expect 6.7% this year and 6.8% next, although boosted a little above earnings by the firm’s ongoing return of surplus capital.
Over the longer term, I expect to see total yields of 5% to 6% per year at today’s share price levels, and that’s got to be worth having — especially from a UK-only business that looks safe from Brexit.
Reliable oil
My third pick is good old reliable Royal Dutch Shell (LSE: RDSB) with its consistent dividends all through the oil price crisis. Bob Dudley of BP said we could be in for at least two or three years of cheap oil, which turned out to be right, and his key message was simply not to panic as things would be back to normal over the long term.
And while smaller oil companies, especially those carrying big debts, have suffered, BP and Shell have been largely untroubled.
Earnings at Shell have dropped for four years in a row, and won’t come close to covering this year’s dividend. But Shell has the cash to keep on paying it, and with a couple of years of recovering earnings forecast now that the OPEC agreement is lifting the price of a barrel again, cover should be back next year.
And a dividend yield of 6.4% is one that’s surely not to be missed.