Hargreaves and SJP dividends in ‘danger zone’

financial wellbeing growth

Hargreaves Lansdown and St James Place are among the financials in the “dividend danger zone”, according to AJ Bell’s latest Dividend Dashboard, with dividend cover of 1.1x each forecast for this year.

Alongside mining, financials is responsible for 64 per cent of predicted dividend growth this year, but the former is dependent on commodity prices while the latter is dependent on the underlying UK economy.

The FTSE 100 will pay out more than £82bn in dividends this year, up 15 per cent compared to last year, according to analyst forecasts; however, half of this growth comes from six companies, with five of these in oil or mining.

Mining will deliver 37 per cent of dividend growth and financials will deliver 27 per cent in 2017, according to forecasts. Oil & gas will deliver 11 per cent and consumer staples will deliver 9 per cent.

However, AJ Bell warns there are 25 companies in the blue chip index that have dividend cover of less than 1.5, which it terms the “dividend danger zone”.

This includes Hargreaves and SJP in the financials sector, alongside Legal & General, Standard Life, HSBC and Provident Financial. Scottish Mortgage Investment Trust has the lowest dividend cover at 0.33x, but is growth focussed.

Hargreaves Lansdown has been shorted by a number of hedge funds amid increasing competition from large low-cost asset managers and robo-advice offerings from banks.

AJ Bell investment director Russ Mould says the pay-outs from the FTSE 100 this year are heavily reliant on the price of metals and oil and, in the case of financials, the state of the underlying economy.

“None of these are easy to predict so investors must be careful to hunt out companies that they feel can sustain their dividends over a long period because it is harvesting and reinvesting these dividends that can really deliver strong total returns to investors.”

In contrast, Old Mutual and Schroders feature in the 16-strong list of what AJ Bell terms the “dividend sweet spot”, with yields in excess of 3 per cent forecast with dividend cover close to or over 2x.

Old Mutual has a forecast yield of 3.7 per cent and dividend cover of 2.99x, while Schroders is set to deliver 3.3 per cent with 1.99x dividend cover.

Dividend danger zone

 

Forecast dividend yield in 2017

Forecast dividend cover in 2017

Barratt Developments

7.0%

1.45 x

Legal and General

5.9%

1.44 x

National Grid

4.5%

1.42 x

Taylor Wimpey

7.4%

1.39 x

GlaxoSmithKline

4.7%

1.38 x

Standard Life

5.5%

1.37 x

Severn Trent

3.5%

1.34 x

AstraZeneca

4.1%

1.34 x

Centrica

6.0%

1.32 x

HSBC

5.7%

1.28 x

Provident Financial

4.9%

1.25 x

SSE

6.3%

1.25 x

Direct Line

6.7%

1.24 x

Hammerson

4.4%

1.19 x

British Land

4.9%

1.18 x

SEGRO

3.3%

1.17 x

United Utilities

4.1%

1.12 x

Hargreaves Lansdown

2.9%

1.10 x

St. James’s Place

3.4%

1.10 x

Land Securities

4.8%

1.00 x

Admiral Group

5.4%

0.98 x

Royal Dutch Shell

6.8%

0.91 x

BP

6.4%

0.82 x

Vodafone

5.5%

0.60 x

Scottish Mortgage Inv. Trust

0.7%

0.33 x

 

Dividend sweet spot

 

2017 forecast dividend cover

2017 forecast dividend yield

ITV

1.96x

4.4%

Anglo American

3.84x

4.4%

Next

2.22x

4.2%

International Cons. Airlines

3.15x

4.0%

WPP

1.99x

3.8%

Old Mutual

2.99x

3.7%

RSA Insurance

2.00x

3.5%

Pearson

2.00x

3.4%

Kingfisher

2.21x

3.4%

Babcock International

2.78x

3.4%

Schroders

1.99x

3.3%

BAE Systems

1.98x

3.3%

Glencore

2.77x

3.2%

Smurfit Kappa

2.43x

3.1%

Informa

2.31x

3.0%

Micro Focus

2.02x

3.0%