Asset management giant Jupiter Fund Management (LSE: JUP) has long proved a lucrative selection for those seeking abundant dividend flows, the firm boosted by a steady record of earnings growth.
And the City expects payouts to keep galloping higher during the medium term at least. Supported by a predicted 10% bottom-line advance, Jupiter is predicted to raise a forecast 25.7p per share payout in 2016 to 28.2p in the current year, producing a yield of 6.8%.
And the shareholder reward is expected to move to 30.2p per share in 2018, helped by an expected 8% earnings rise and driving the yield to an even-better 7.3%.
But cautious investors should pay serious heed to Jupiter’s latest trading statement before leaping in. While the company punched cumulative net mutual fund inflows of £859m in 2016, Jupiter endured overall net outflows of £373m during the final quarter.
The firm advised that the impact of wider market uncertainty during 2016 was “muted,” although Jupiter added that “we expect the current state of global political and economic uncertainty to continue to affect investor sentiment in 2017.”
This comes as little surprise as Britain’s attempts to unshackle itself from the EU continue; major elections in Germany and France take place this year; and President-elect Donald Trump takes office in the US. These events could see nervous investors step up withdrawals at Jupiter in the months ahead.
And with predicted dividends covered just 1.2 times by projected earnings in 2017 and 2018, well below the widely-regarded safety benchmark of two times, I reckon Jupiter could well miss current projections.
A risk too far?
Multi-services entertainment provider TalkTalk Telecom Group’s (LSE: TALK) dividend prospects are also coming under close scrutiny, as evidenced by current City predictions.
Indeed, the company’s progressive dividend programme is anticipated to shudder to a halt in the current year, a 14.3p per share reward in the period to March 2017 representing a downgrade from fiscal 2016’s 15.87p payout.
Further trouble is predicted down the line too, and TalkTalk is expected to trim the dividend to 12.8p in 2018.
Having said that, many investors will no doubt be tempted by jumbo yields of 8.6% and 7.7% for this year and next respectively.
But TalkTalk’s strained balance sheet is still casting a cloud over the company’s ability to meet even these predictions. The business tapped the bond market for £400m earlier this month to address its rocketing debt pile — net debt ballooned by almost a third year-on-year as of September, to £847m.
And TalkTalk’s sliding customer base could come under increased pressure as the likes of Sky and BT ramp up their attacks on the value end of the market, putting earnings under the cosh
So while TalkTalk is expected to record double-digit earnings expansion this year and next, predicted dividends are also covered woefully. Indeed, this year’s estimate actually surpasses expected earnings of 13.4p per share. And 2018’s forecast reward is covered just 1.2 times.
I reckon there’s plenty of scope for both Jupiter and TalkTalk to disappoint dividend chasers in the near term and beyond.