Royal Bank of Scotland (LSE: RBS) has seen its share price trek lower again in recent months as the prospect of slumping revenues and rising bad loans has intensified. And I for one cannot blame share pickers for switching out.
More on RBS in a second. First I want to look at another FTSE 100 share which also stands on extremely shaky foundations: DIY specialist Kingfisher (LSE: KGF).
A dire DIY outlook
Last time I covered the retailer in February I spoke about the trouble it was experiencing due to the disruption caused by its five-year âONE Kingfisherâ transformation strategy. While the business said it was taking steps to address these troubles, the newsflow has since worsened.
Last month the B&Q and Screwfix ownerâs share price fell off a cliff after the firm advised that like-for-like revenues dropped 0.7% in the 12 months to January 2018, a result that drove adjusted pre-tax profit 8.1% lower to ÂŁ683m.
Kingfisher really gave the market jitters when, commenting on the âmixed pictureâ for its territories in the current year, it said that âthe UK is more uncertainâ while âFrance is encouraging yet volatile.â
Despite this disappointing update, however, City analysts are expecting Kingfisher to bounce back from the 11% earnings drop recorded last year with rises of 18% in both fiscal 2019 and 2020.
I believe such predictions are in huge jeopardy of being downgraded, given the difficulties recently being reported by many of the countryâs home improvement retailers like Topps Tiles and Carpetright, not to mention the worsening trading conditions on the other side of the English Channel.
By extension, I reckon hopes of punchy dividend growth over at Kingfisher are looking a bit strained too, the Square Mile anticipating payouts of 11.5p this year and 13.3p next year, up from the 10.82p dividend of fiscal 2018.
Some investors may still be tempted in by meaty yields of 3.8% and 4.4% for fiscal 2019 and 2020 respectively, while some would argue that a forward P/E ratio of 11.7 times also bakes in the possibility of prolonged earnings strife. I am not convinced and reckon there are much safer income shares to be found across the FTSE 100.
Steer clear of RBS too
Like Kingfisher, RBS can also be picked up on a cheap paper valuation, the bank sporting a forward P/E multiple of 10.8 times.
However, the poor outlook for the UK economy does not convince me that earnings may rise at all in 2018, a fractional advance is currently forecast by City boffins. I also fail to be soothed by predictions of an 11% profits rise next year.
This, combined with RBSâs wafer-thin balance sheet (it emerged from Bank of England capital stress tests  by the skin of its teeth late last year) and the prospect of more crushing misconduct penalties, does not convince me that dividends are about to be reinstated either. This is despite the business announcing plans this week to slip ÂŁ3.5bn into its pension scheme in a move seen as key to the bank making payments to its shareholders again.
Current estimates suggest payouts of 6.4p this year and 11.9p for 2019, figures that yield 2.4% and 4.4% respectively. I remain to be convinced by RBS as a decent dividend bet, however, and reckon stock selectors should stay away.