Here are three dividend-paying companies with news coming our way in October.

Housing cash

Housebuilders had been suffering as interest rates were rising. And now that it looks like the Bank of England could be forced into even bigger hikes by the slump in the pound, fears are growing further.

As the final week of September progressed, more and more mortgage lenders withdrew mortgage deals as costs became increasingly uncertain.

Against that background, Bellway will deliver full-year results on 18 October. Bellway shares have fallen 50% in value over the past 12 months.

The results will be pretty much out of date even before they’re posted. But I’ll be watching for any hints at how business has gone since year-end, and where the company thinks its outlook is going.

If it holds, the forecast dividend would yield 6.6% this year.

Fund management

The whole investment management business has slumped, with companies suffering cash outflows as investors seek safety elsewhere. Jupiter Fund Management (LSE: JUP) is among them, with a whopping 60% share price fall over the past 12 months.

Jupiter should be releasing a third-quarter trading update on 20 October, and I’ll be looking for anything that might affect the dividend.

For the first half, the company maintained its dividend of 7.9p per share, unchanged since the same period a year previously. At the time, Jupiter said it “remains a well-capitalised business with a strong balance sheet“.

If the board also maintains the final payout, we could see a whopping 18% full-year yield. But there’s big uncertainty there, considering the worsening economic outlook.

Oil dividends

Oil and gas shares have been among the best performers in 2022. BP shares are up 30% over the past 12 months, while Shell (LSE: SHEL) has climbed 40%.

We’ll have a Q3 update from Shell on 27 October. Oil is dropping a bit, to around $85 for a barrel of Brent Crude. But I still expect to see the cash flowing strongly.

Forecasts put this year’s dividend yield at 3.9%, which is not one of the biggest around. But it’s one of the few in the FTSE 100 that haven’t been boosted by falling share prices in 2022.

Analysts see the dividend holding steady over the next couple of years. But that depends a lot on where the oil price goes. Any further declines could put recent share price gains at risk.

Verdict

There are clearly risks with all of these, and they might not be my top picks in their individual industries. But they’re all in sectors that I think have solid long-term dividend potential.

Jupiter share price rollercoaster

This is more than an academic question to me, as Jupiter is a significant holding in my portfolio. The Jupiter share price now trades for pennies and has lost 62% of its value over the past year.

Indeed, that helps to explain why the dividend yield is at today’s dizzying level. The payout has been held flat, but a collapsing share price has pushed the yield upwards.

Clearly, this has not come out of nowhere. Jupiter has been facing a litany of woes that could signal its business is worth less than previously thought. Net outflow of client funds? Check. Management upheaval? Check. Exposure to a fund investing in unlisted companies that has raised questions over valuations? Check.

Is there smoke without fire? In Jupiter’s case, the business looks like it has been struggling but I am not sure that means it is in fundamentally bad shape.

While client net outflows in the first half of £3.6bn look terrible, it is also worth remembering that the firm ended the same period last year with funds at an all-time high. The company has a strong brand I think it could use to attract new investors. Although Jupiter is facing some significant challenges, I do not necessarily think it is holed below the waterline.

Risk and reward

If that turns out to be true, the current opportunity to pick up Jupiter shares for pennies could turn out to be very lucrative. That is why I have been loading up on Jupiter shares.

The firm has doggedly maintained its ordinary dividend for years, including at this year’s interim results stage. If the business performance continues to be weak, it may be forced to cut it – although with a 17% yield, even a sizeable reduction could still leave a chunky payout.

But if the business recovers, the firm may be able to maintain its dividend. In that case, the current Jupiter share price could be the sort of thing I would look back on in a year as a golden buying opportunity.

Where next for the Jupiter dividend

In reality though I already have a lot of Jupiter shares. I always try to ensure that no one company is too big a part of my portfolio. It is for situations just like this one that can look so tempting to me as an investor that I adopt this risk management approach. So I will not be buying any more shares, but will hold on to the ones I have.

A lot of smart money seems to have been turning against Jupiter’s prospects, which explains the heavy share price fall. I do see real risks here, but also potentially great rewards. Jupiter’s dividend may be sustainable, if business recovers. Otherwise, the payout is clearly at risk.

I am alert to the risks but am holding on in the hope of recovery.

Often though, a yield that high is a red flag that a dividend cut might be on its way. So, is this share one worth holding in my portfolio?

Self-made problems

The share in question is Jupiter (LSE: JUP).

It has been a tough time for asset managers and a lot of rivals have seen their shares fall. Abrdn, for example, has seen its shares plummet 44% over the past year. But I think Jupiter is suffering from some bad choices of its own making, not just the general problems currently facing many asset managers.

An example is Jupiter’s close involvement with investment trust Chrysalis. The latter’s shares have fallen 72% in the past year. Its exposure to unquoted companies has brought its valuations under scrutiny. That seems to have been a distraction for Jupiter and has helped to drag its share price down 62% in the past year.

As the Jupiter share price has fallen, its dividend yield has moved up. It now offers the biggest yield of any company in either the FTSE 250 or FTSE 100!

Trouble at t’mill

My concern, though, is that the dividend may be cut.

At the interim level, Jupiter maintained its payout at the same level as last year. But business performance was alarming. Compared to the same period last year, net management fees fell 11% and statutory profit before tax crashed 68%. Over the six months, assets under management fell by 19%. Partly that reflects market returns that are affecting many asset managers. But it also came about because Jupiter saw net cash outflows of £3.6bn across the period.

It means that Jupiter fundholders are pulling about £140m a week more from its funds than they are putting into them. The company’s fall in earnings in the first half already alarmed me. But if the net outflow of client funds continues, I think earnings could slide even further. The 7.9p per share interim dividend was nowhere near being covered by basic earnings per share for the six months of 2.6p.

If Jupiter cannot turn its business performance around quickly I think it will likely have to cut its dividend in future.

FTSE 250 high yielder

Despite that, I continue to be attracted to the company and hold it in my portfolio.

The mammoth current yield means that even after a dividend cut, Jupiter could be an attractive income pick compared to many other FTSE shares. Although its business has stumbled, it retains key assets, such as a well-known brand. It needs to figure out how to get more investors putting money into its funds. It has been able to do that in the past, which gives me some confidence it can do it again in future.

The battered share price reflects many investors’ deep worries about what happens next at Jupiter. I recognise the risks involved, but continue to see an investment case for the fund manager. I think the share is worth me still owning, although I am increasingly expecting a dividend cut.

These are the questions I’m hoping to answer today.

#1: Persimmon’s 12% yield

At the top of my list is FTSE 100 housebuilder Persimmon (LSE: PSN). This popular dividend stock yields 12%, based on a payout that’s been unchanged since 2017 (except during the pandemic).

So far, Persimmon’s dividend has been comfortably covered by its profits each year. Analysts expect this to be true again in 2022. Forecasts suggest earnings of 250p per share, covering the dividend of 235p.

However, there’s an obvious weakness here. What if earnings fall? The latest Halifax House Price Index showed house prices falling by 0.1% in July. Although that’s only a tiny change, it’s the first fall since June 2021.

Faced with the rising cost of living and higher mortgage rates, I think there’s a chance house prices could fall more significantly.

I don’t expect a full-on crash. Indeed, I think Persimmon will continue to trade well. But I think that the group’s profits could fall over the next year or so, increasing the risk of a dividend cut.

#2: Diversified Energy could top 11%

US firm Diversified Energy (LSE: DEC) specialises in buying up old oil and gas wells in states such as West Virginia and Ohio.

According to Diversified’s website, it currently owns around 67,000 wells. The company’s latest production figures show that it produced 136,000 barrels of oil equivalent per day during the first half of 2022.

That’s equivalent to an average just 2 barrels of oil equivalent per day from each of the company’s wells.

Critics of Diversified’s business suggest that old wells may leak methane and will be expensive to decommission. Diversified’s own figures suggest that shutting down all of its wells could cost $1.4bn.

However, chief executive Rusty Hutson says that the market is underestimating Diversified’s ability to generate cash.

While energy prices stay high, I think Diversified’s forecast yield of 10.8% looks safe enough. Indeed, broker forecasts suggest another increase next year that would push the dividend yield above 11%.

Unfortunately, I think the longer-term outlook is more uncertain. In my view, investors need to do their own research before considering an investment in this unusual business.

#3: Will new boss cut Jupiter’s dividend?

Shares in FTSE 250 asset manager Jupiter Fund Management (LSE: JUP) have fallen by 65% since departing chief executive Andrew Formica took charge in March 2019.

This slump has been driven by falling assets under management, as customers have withdrawn their cash from underperforming funds. Jupiter’s assets under management have fallen from £59bn to £49bn since the end of 2020.

As a result, the company’s fee income has also fallen. Jupiter’s forecast earnings no longer cover its dividend.

Broker consensus forecasts suggest that Jupiter’s next CEO, Matthew Beesley, could cut the dividend from 17.1p to 13.1p per share. That would give a yield of 10.8%.

If Jupiter’s performance improves, I think the shares could be good value at this level. But I don’t know how likely this is, so this isn’t a share I’d buy right now.

Right now, I’m seeing some very attractive dividend yields, which I think look like definite long-term buys. But what do I mean by “no-brainer”?

I’m thinking about shares in business that tend to suffer in economic downturns, like we’re in right now. But they’re in industries that have a track record of bouncing back when things improve.

Fund management

In tough times when stock markets are weak and investors are scared, investment managers will inevitably suffer.

That’s exactly what’s happened at Jupiter Fund Management (LSE: JUP). The firm has seen an outflow of funds, and poor performances in some of its holdings. Taken together, that doesn’t look good. And the Jupiter share price has slumped.

The forecast dividend yield has shot up above 10% now. To sound a caution, I wouldn’t be surprised if it’s cut. And we could be in for a further shaky spell for Jupiter shares.

But every stock market downturn I’ve ever seen has been followed by a recovery. And those who manage investments for their customers tend to do well when that happens.

Insurance

Inflationary pressures have hit insurers, particularly specialist ones. And that’s sent the Direct Line Insurance (LSE: DLG) share price plunging.

But it’s also pushed the forecast dividend yield up, again to more than 10%. Will there be a dividend cut? I think the possibility is quite high. Still, investors in the insurance business should expect this, shouldn’t they? I mean, they pay out when times are tough, and they suffer price competition when inflation is high.

So if I invest in insurance, I do so for the long term, with enough time to cover the ups and the downs. And when there’s a downturn? Well, I disagree with those who think it’s time to sell.

I expect tough times for the insurance sector for a while yet. But over the decades, it’s a highly cash-generative business. And I’d buy when it’s down, for better long-term dividend yields.

Housing

My simple, no-brainer, thinking about the housebuilding industry goes something like this… We’re suffering a chronic housing shortage in the UK, which is almost certain to be with us for a long time yet. So it’s surely a good business to invest in, isn’t it?

And after this year’s price falls, Bellway (LSE: BWY) has to be a good stock to buy now, right?

Does it need to be any more complicated than that? The City seems to think so. The predicted dividend yield is now above 6%. Will it be cut? I don’t know, but it might. And the whole business might face gloom and despondency in the next couple of years.

Long-term

But again, the strategy of investing in dividend stocks with long-term strength when they’re in a short-term downturn seems obvious to me.

With all of these, I think investors should be prepared to suffer some short-term pain. But what does that matter to those with decades-long investing horizons?

With £300 to invest per month, here’s my plan to derive income from my investments!

A juicy dividend yield

The shares in Jupiter Asset Management (LSE: JUP) are down 53.5% in the last year and have fallen 13.7% in the last month. At the time of writing, they’re trading at 127.8p.

The firm has one of the highest dividend yields on the FTSE 250 index, registering 13.53% at current levels. In 2021, it paid a total dividend of 17.1p per share. 

To put this in context, if I bought £1,000 worth of shares, I would receive annual income just shy of £150. That’s just merely from holding the stock.

It should be noted, however, that dividend policies can be subject to change in the future.

Furthermore, pre-tax profit has been consistent in recent years and has actually grown over the course of the pandemic.

However, the business still reported net outflows of £3.8bn in 2021. Although this was down from £4bn in 2020, it still means that clients are withdrawing money.

With heightened economic uncertainty and a possible recession looming, the asset manager still doesn’t fully know how these factors may impact the business in the near future.

On the other hand, assets under management increased by 3% in 2021, compared with the previous year. 

Increasing its market share

Second, the TP ICAP (LSE:TCAP) share price has fallen by 38% in the past year and currently trades at 118.8p.

At the moment, the firm has a dividend yield of 7.9% and paid a total dividend of 9.5p per share in 2021.

The company – a commodities broker – performed well during the pandemic. This was primarily because of increased volatility within global markets.

It reported a pre-tax profit of £145m in 2020, up from £108m in 2019. By 2021, however, this figure fell to £31m in 2021. While revenue was consistent during this time, I will be watching closely to see how inflation and rising commodity prices impact the firm.

For the three months to 31 March, revenue grew by 14% and the company acquired Liquidnet, an equity and fixed income broker with a global reach, thereby increasing its market share. Furthermore, its interest rate desk is now ranked second in terms of market share, up from fourth.

Overall, both of these companies have attractive dividend yields and this gives me the real possibility of building a passive income stream. While there are risks associated with both firms, I think my monthly investment of £300 could be split between the shares in each business to derive long-term income. I will be adding both companies to my portfolio soon.

Today brought good news for the dividend — but also potentially bad news.

Bad performance

Jupiter’s interim results were released this morning and they make for horrible reading overall.

But one piece of good news was that the interim dividend is being held at the same level as last year. That is 7.9p per share. It is a substantial amount given that the shares currently trade at £1.25.

The bad news came in the form of Jupiter’s business performance. It ended last year weakly and things just seem to be going from bad to worse. To its shame, the company did not even include a comparative figure for last year in its very first headline, which simply noted that, “assets under management (AUM) ended the period at £48.8bn” The equivalent figure last year was in fact a record high of £60.3bn.

That 19% fall in assets under management is partly due to changing market valuations. But it also reflects clients pulling money out of Jupiter funds. The past six months saw net outflows of £2.3bn. All three areas of Jupiter’s business reported net outflows for the period, aside from any impact due to market returns.

Could the Jupiter dividend be cut?

My concern here is that if Jupiter does not fix its business then the dividend could be in danger.

Underlying earnings per share in the first half of 4.2p and basic earnings per share of 2.6p are not enough to cover the interim dividend.

To maintain its dividend rather than cut it, I think Jupiter urgently needs to improve its business performance. But as it rightly pointed out, the outlook for its sector as a whole looks quite unpromising at the moment. A recently announced change in Jupiter’s leadership could bring in new blood.

I think the firm has strong assets, such as its well-known brand and existing customer base. But it needs to put them to work harder and faster than it has been doing and attract new clients.

In the results, Jupiter said, “it is clear that we are in a very challenging environment for asset managers. With this backdrop in mind, we remain focused on taking a disciplined approach to our cost base”. But its well-paid executives are given big salaries precisely to deal with challenging environments. Cost control is fine but businesses cannot cut their way to growth. What I am looking for Jupiter to do urgently is to stabilise net outflows then return to growth. That could help boost earnings and support the dividend.

My move

I will be happy to receive the Jupiter dividend announced today. But I am concerned that the business is doing so weakly and Jupiter’s leadership seems not to be doing as much as I would like to fix that.

Given the potential of the business and juicy yield, I will hold my shares. But I recognise that the dividend may be cut if performance remains weak, perhaps as soon as the annual results.

Investing

Investment managers are suffering from funds outflows right now, with investors shunning risk. But I wasn’t expecting to see such a big profit fall at Jupiter Fund Management (LSE: JUP).

Underlying pre-tax profit slumped to £29.7m, from £78.2m in the first half of 2021. But the Jupiter share price is down only 5% at the time of writing. Maybe investors already feared the worst, having seen a 55% drop over the past 12 months.

Profits suffered from reduction in performance-related fees, which is hardly surprising. Excluding net performance fees, the profit dip looked less painful, down from £79.8m to £53.9m.

This does show the risks of investing in fund managers. But if I want long-term growth shares, I know I have to expect it from time to time.

Moving

Turning to another sector under pressure, I see the Rightmove (LSE: RMV) share price has also fallen 55% in the past 12 months.

After Friday’s H1 results, the shares dipped another percent or so. The outlook for the estate agent business in the second half of the year might be a bit cloudy. But the first half, at least, saw a 9% increase in revenue with underlying earnings per share up 7%.

The company boosted its interim dividend by 10%, which I’d say shows confidence. And Rightmove has been returning cash through share buybacks too.

Rightmove’s profits have been erratic in recent years. But forecasters do see earnings growing, if slowly, over the next few years. Is this another growth candidate to buy while it’s down?

Testing

To complete a trio of fallers on the day, I turn to Intertek (LSE: ITRK). Shares in the testing and inspection specialist are down 5% as I write, having fallen 43% over 12 months.

Intertek recorded a 9.5% rise in revenue at constant exchange rates, with like-for-like revenue up 4.9%. Adjusted operating profit increased by 4% too, and I’m seeing decent results all round here.

So why isn’t the market impressed? It might be because the company didn’t increase its interim dividend, maintaining it at last year’s 34.3p. But Intertek is not really an income stock anyway, and analysts are again predicting continued earnings growth over the next couple of years.

On the same day, Intertek announced the acquisition of Clean Energy Associates, described as “a market-leading independent provider of quality assurance, supply chain traceability and technical services to the fast-growing solar energy and energy storage sectors.”

Growth?

Rightmove and Intertek are both on relatively lofty valuations, after their share price falls. So that might well hold back their share prices in the shorter term. But I can’t help thinking I’m looking at a couple of long-term growth opportunities here.

Jupiter, meanwhile, is one I’ve always liked. But I do expect to see share price volatility over the years.

Jupiter shares continue to slide

As a quick reminder, Jupiter is a fund management business that manages equity and bond investments for private and institutional investors. It currently has assets under management of over £55bn.

So what’s happening with Jupiter shares currently? Well, as I write, they’re trading for 139p. At this time last year, the stock was trading for 285p, which is a 51% drop over a 12-month period.

It is worth noting that many UK shares have fallen in recent months. This has been due to macroeconomic headwinds such as soaring inflation and rumours of a recession. Furthermore, the tragic events of Ukraine have had a negative impact on indexes across the world.

Risky business

The main issue with fund management businesses is that in times of economic crisis, such as now, investor confidence can dwindle. This is usually linked also to investors pulling out funds.

During the first quarter of this trading year, Jupiter saw customers pull out close to £1.6bn more in funds than went in. If the economic picture worsens, investors may pull out more. This could have a negative impact on performance, investment viability, and returns.

The economic picture in the UK is not a pretty sight currently. The cost-of-living crisis, caused by soaring inflation and rising prices, could be one of the major causes of funds being pulled by investors. This is something I will keep an eye on.

The bull case and my verdict

At current levels, Jupiter’s dividend yield stands at a very tempting 12.2%. As the shares have continued to slide, they look good value for money on a price-to-earnings ratio of just seven.

Both these things help build my bull case. In addition to these, I looked back through Jupiter’s dividend and performance record. I do understand that past performance is not a guarantee of the future, however. It has maintained its basic dividend for a few years now. It did not pay a special dividend but I see that was due to a change in tack whereby it is offering share buybacks instead. This could be seen as advantageous, especially as the current shares look dirt-cheap.

Jupiter has been able to comfortably cover its basic dividend based on its current earnings per share. For these reasons, I don’t think Jupiter will cut its dividend any time soon.

When shares fall, and a dividend yield is pushed up, it can often signal a value trap. I don’t think this is the case for Jupiter. Looking at its assets under management, dividend coverage, profile as a business, recent performance and current economic outlook, I think the shares look like a steal right now.

I own shares in rival fund manager M&G, which also offers a tasty dividend yield of over 9%. I’d add Jupiter shares to my holdings too although I wouldn’t be surprised to see some short-term pain based on the economic situation at present.

I already own these shares in my portfolio. But is now a good moment for me to purchase more? Or does the unusually high yield signal that Jupiter may be a value trap I should avoid?

Fund management woes

Jupiter is not the only fund manager that currently has an attractive-seeming yield. Rival M&G yields 9.5%. Abrdn is at 9.2%.

Set against those figures, the Jupiter yield does not look so unusual. But the fund management sector in general may be seeing a lack of investor confidence right now, pushing share prices down and dividend yields up.

On top of that, one specific concern I have about Jupiter is the outflow of funds. In the first quarter, customers pulled £1.6bn more from Jupiter funds than they put in. If a worsening economy leads more investors to reassess what they are doing with their money, outflows could grow. That is a risk to both revenues and earnings at Jupiter.

Jupiter dividend sustainability

If that risk comes to pass, could it be a threat to the current Jupiter dividend? I think the answer is yes, if the profit fall is big enough.

However, Jupiter has maintained its basic dividend over the past few years. It is true that it paid no special dividend last year, so the total payout per share fell. But that reflects a shift in strategy, with future excess capital return being in the form of share buybacks not special dividends. I actually think that could create value for shareholders given the current low price of Jupiter shares, down 47% in a year and trading on a price-to-earnings ratio below six.

Basic earnings per share last year came in at 27.6p. That comfortably covered the 17.1p per share dividend. If profits fall, coverage may weaken. But for now at least, I see no particular reason to expect a dividend cut soon.

My next move

I keep my portfolio diversified as a way to limit the impact if one share or indeed a whole business sector performs weakly. As my exposure to fund managers increases, I am conscious that the growing yields might signal that the sector is becoming a value trap. Maybe Jupiter has such a high yield because investors are dumping the shares in anticipation that continued customer withdrawals will lead to lower profits and a reduced dividend.

Although that is a risk, I do not see any specific reason for it to happen. For now, dividend coverage remains more than adequate. Jupiter has a strong brand and I think it has the resources necessary to attract clients even in a worsening economy. I think the share sell-off looks overdone.

The Jupiter dividend yield is very attractive to me. I am considering buying more of the firm’s shares for my portfolio, while making sure that I do not overexpose myself to the fund management sector.