Are you looking for outstanding dividend picks in the markets end-of-summer sale? Look no further than the top yielders among the blue-chip holdings of renowned fund manager Neil Woodford.
Right now, Woodford favourites GlaxoSmithKline (LSE: GSK), Centrica (LSE: CNA) and Legal & General (LSE: LGEN) are all offering yields in excess of 5% well above the FTSE 100 average.
Recent share price |
12-month forecast yield |
|
---|---|---|
GlaxoSmithKline | 1,310p | 6.1% |
Legal & General | 249p | 5.6% |
Centrica | 236p | 5.2% |
GlaxoSmithKline
GlaxoSmithKline has suffered in recent years from the unwelcome effects of expiring patents on some of its top-selling products. However, the Footsies biggest pharmaceuticals firm is nearing the end of what will be a four-year run of earnings falls, because earnings growth is forecast to return in 2016.
Glaxo has said it intends to peg the annual dividend at 80p a year through to 2017, giving a 6.1% annual income for the period. (Therell also be a little extra from a one-off special dividend of 20p thats planned to be paid alongside the 2015 Q4 payout.) Dividend increases should be able to resume after 2017, if Glaxos guidance of mid-to-high single digits earnings growth is on the mark.
Woodford considers Glaxo a core income stock. Also, the markets focus on short-term earnings in recent years has put the shares at a discount to a sum-of-the-parts valuation of the group, giving good scope for share price appreciation in the future.
Centrica
Centrica the owner of British Gas is another blue-chip company that is going through a phase of earnings declines. Unseasonable weather hurt the company last year, while low oil and gas prices are impacting on the groups upstream business this year.
Under a new chief executive, Centrica announced earlier this year that it was rebasing its dividend 30% lower (a move Woodford didnt think was entirely necessary). Despite the cut, the yield has risen to 5.2%, because the shares have fallen, with the market not being enamoured by the short-term outlook of a 7% earnings decline this year and meagre growth of 1% next year.
Centricas shares are now trading at a multi-year low, so investors today are getting a better dividend yield than Woodford was able to secure on purchases he made last year and earlier this year.
Legal & General
Legal & General has no earnings worries. The insurer and asset manager has been posting double-digit annual growth in recent years, and is set to continue doing so for the foreseeable future. The dividend has increased faster than earnings since the financial crisis, because management decided to gradually lower cover as recovery gained momentum.
The dividend should now start to move in step with earnings. But who can complain when theres currently a 5.6% starting yield and the prospect of dividend increases tracking double-digit earnings growth? Not Woodford. Legal & General is the only FTSE 100 financial stock he considers worthy of holding.
You’ll probably have noticed a lot of financial commentary recently questioning the sustainability of dividends in certain industries and for certain companies.
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G A Chester has no position in any shares mentioned. The Motley Fool UK has recommended Centrica and GlaxoSmithKline. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.