May 18th, 2012
Dividend results and prospects
Down goes the Footsie. Why I want it to last longer?
Exciting last few days!
Perhaps for a different reason than you think?
Before we delve deeper why I want share prices to come down further, I would first like to cover some recent results and dividend updates of several well known dividend paying companies, including:
National Grid – pure play utility
UK’s ‘purest’ utility National Grid’s 2011-12 results contained few surprises. Total revenue fell 3.5% to £13.8bn while profit before tax rose by 5% to £2.6bn.
The company confirmed the expected 8% inflation beating dividend increase, taking the total dividend for the year to 39.28 pence.
At 25.35 pence, the final dividend is going ex-dividend on 30th May and is payable on 15th August.
A more modest 4% dividend increase is planned for the current year. National Grid confirmed that it will be announcing a new dividend policy for future years, in due course, depending on the confirmation of the new regulatory pricing regime in the UK.
Click Here for more in-depth coverage on National Grid.
SSE – so steady eddie
In line with market expectations, SSE - National Grid’s fellow FTSE100 utility – announced a 6.8% dividend increase, taking the total dividend payout to 80p per share for the year.
The utility group reconfirmed that it would increase its dividend by 2% more than inflation as measured by the retail prices index.
SSE offers one of UK’s more attractive dividend records in the UK with 13 years of successive above-inflation dividend increases.
BAE Systems – uncertain prospects
UK’s military hardware champion BAE Systems, released a management statement for the first five months of the year, reconfirming that it expects little sales growth for 2012.
Modest growth in earnings per share is possible though primarily based on the satisfactory outcome of the ‘all-important’ Saudi aircraft contract negotiations later this year
Longer term, the prospects of possible cutbacks in military expenditure by the UK and US is already likely to having an impact on the share price while 2012 dividend forecast of around 19 pence should provide it with some support at current share price levels.
Click Here for more in-depth coverage on BAE Systems.
AstraZeneca - results down, dividend safe?
AZN surprised the markets with worse first quarter results than initially expected, in part due to the loss of exclusivity on several brands and slower growth in several developing markets. Earnings per share were down a massive 39%.
AZN have lowered their earnings per share guidance for the full year. The 2012 dividend forecast is around 180 pence and does not appear to be under threat...yet, as the company continues to hold a net cash position - rather unique compared to many other FTSE100 companies.
Click Here for more in-depth coverage on AstraZeneca.
BP – dividend up...sort of
With profits down on the previous quarter, quarterly dividend payer BP’s first quarter results included a pleasing increase in dividends at US 8¢ going ex-dividend on 9th May and is payable on 27th June.
The sterling conversion will be announced on 13 June. In dollars, the dividend increase is well above inflation at 14.3% compared to the 7¢ paid a year ago and equal to the amount paid for the last quarter.
Even with this rise, dividend payouts are still running at only a little over half their pre-oil spill levels when quarterly dividends of 14.0¢ were being paid.
Click Here for more in-depth coverage on BP.
GlaxoSmithKline – dividend up
With turnover virtually flat, and earnings per share down, first quarter results revealed an inflation beating 6.2% increase dividend at 17 pence going ex-dividend on 9th May and payable on July 5th.
For the year, the dividend is expected to be around 74 pence. GSK expects core operating margins to improve gradually with further gains over the next two to three years. Hopefully this will translate into higher dividends going forward.
Unfortunately, the company also announced that they intend a rather massive £2-2.5bn share buyback programme this year, which instead could be used more sensibly by reducing debt and increasing dividends.
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Down comes the Footsie.
Are we at the bottom?
The first three months of 2012, with the exception perhaps for Tesco investors, were very much a one-way ride for equity investors, as share prices rose almost across the board.
However, since closing at 5,966 on 16 March, the FTSE 100 index has taken a dive and the end is unlikely to be in sight yet.
This Friday the Footsie closed at 5,267 - down almost 700 points - 699 to be precise -, or nearly 11.7% from its March high. That represents a formidable sell-off in my book.
Big fallers include mining companies (hard landing in China?), banks and insurance firms (Grexit? Euro implosion?) as well as companies with heavy exposure to both consumer spending in the UK and overseas (obviously consumers are spending less everywhere).
Perversely you may think, but as a long-term Dividend Income Investor, I am rather enjoying this sell-off. Mind you, not that I am shorting stocks or indices… I am not playing that ‘game’ any longer.
No...I like share prices to be lower.
Significantly lower, in fact.
We may well see share prices substantially lower this Summer.
Just consider this . . . .
- What about the impact of next month's second general election in Greece?
- What about the €450 billion of debt Italy has to roll over this year?
- What about the near-12% yield on 10-year Portuguese bonds or the 6%+ Spain is being forced to pay now?
- What about the strong possibility of another Eurozone downturn?
- Is Facebook ridiculous IPO value a clear signal of technology markets overheating….again?
- Will the USA be able to cut the Budget in this important presidential election year, later this Autumn?
In short, while the FTSE 100 has fallen by 699 points (almost 12%!) from its March high, we may well be at the cusp of another leg down, later this Summer.
Unless . . .
.... of course, you are a long term - contrarian - Dividend Income Investor like me.
With still more than 50% in my Dividend Income Portfolio in cash, as a net buyer of high quality dividend paying shares, I would love it for share prices to go much lower than they currently are.
You may be surprised to hear this, even after the recent sell-off.
From our perspective, many high quality dividend paying companies are still priced well above their historical undervalued price levels, i.e. when they are priced to buy. So we wait...and wait for the inevitable to happen.
Yes, I know it is 'sad' from a stock trading perspective, the life of a long term Dividend Income Investor is rather dull and boring. At least I sleep well most nights.
Instead of being glued at the computer screen attempting to catch any minor or major down or upswing, we just do our research and inform our subscribers at Dividend Income Investor.com accordingly, taking away all the ‘emotions’ of fear and greed many investors…hmm speculators seem to suffer from.
Also, having determined which high quality dividend paying companies I want to own, and, at what price, I just spent some minutes at my online ISA account setting limit buy-orders.
And that's it.
Then, I just wait patiently for the stockmarket to sell me those shares, but only when they have reached those pre-determined historically undervalued levels.
I told you it was boring… but that’s how you maximise total real returns and that's how I like it these days.
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Till next time
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