It’s no surprise that Lloyds’ decision — along with some of Britain’s other blue-chip banks — to cut dividends has dominated headlines today.
Our banks have been some of the FTSE 100’s biggest payers of shareholder rewards in recent times. HSBC in fact was the 10th largest dividend payer on the planet in 2019. Their decision to stop payouts to conserve cash leaves a hole in plenty of share pickers’ investment portfolios.
Another brilliant buy
With the progressive dividend policies of Britain’s blue-chips falling like dominoes it pays to be more careful. I recently explained why Sylvania Platinum is one share that should keep doling out big financial packages to its shareholders, despite the tragic coronavirus breakout. It’s one of many safe-haven or counter-cyclical companies that I’d happily put my own cash into today.
Begbies Traynor Group (LSE: BEG) is another stock outside the Footsie that should thrive in the current environment. Unfortunately it stands to benefit from a likely explosion in the number of companies encountering financial distress and becoming insolvent.
More bad news
The threat to British business as the country locks down to combat Covid-19 was laid bare by a report released today by Corporate Finance Network. The body — which represents accountancy firms the length and breadth of the land — undertook research among 13,000 small-to-medium enterprises (SMEs). And the results were shocking.
The network found that 18% of businesses are in danger of going to the wall over the next four weeks, in spite of government support. It warned that the number could keep ballooning, commenting that “if the lockdown lasts three months or more, the situation looks even more dire with accountants in the network reporting that 31% will have to close down their business by June.”
Top value, inflation-beating dividends
Significant difficulties for the UK economy should see Begbies Traynor come into its own. So it’s odd that the insolvency specialist has been cast off along with more cyclical shares. It’s down 7% over the past six weeks or so and I reckon this is a prime buying opportunity.
The robustness of Begbies Traynor’s operations are underlined by City forecasts. Brokers expect the FTSE 250 business to keep growing annual earnings by mid-teen percentages through the next couple of fiscal years at least.
This provides the bedrock for expectations of more dividend growth too. This leaves the business sporting chunky yields of 3.5% and 3.8% for financial 2020 and 2021 respectively. Begbies Traynor appears to be in good shape to meet these expectations, with dividend coverage sitting around 2 times and the company generating boatloads of cash.
In my opinion, this is one dividend stock that should be commanding plenty of attention from investors today. And its low P/E ratio of 12.2 times seals its brilliant investment case, in my opinion.