Today Im looking at two London stocks with less-than-robust dividend outlooks.
Keep shopping around
Theres no doubt that Sainsburys(LSE: SBRY) has been the most impressive performer of the so-called Big Four supermarket chains in recent months. While Tesco, Morrisons and Asda have continued to haemorrhage customers, Sainsburys has managed to stop the rot and actually post a mild uptick in takings.
Indeed, Kantar Worldpanel advised that sales at the London firm advanced 1.2% in the 12 weeks to 6 December, pushing its market share to 16.7% from 16.5% a year earlier. By comparison thoseFTSE 100 peers Morrisons and Tesco saw their revenues slumping 2% and 3.4%, respectively, during the period.
Sainsburys has performed better than its rivals thanks in no small part to the huge investment in its Taste The Difference premium ranges, while its higher concentration in the south of England is also allowing it to reap the benefits of this economically-stronger region.
But investors shouldnt forget that Sainsburys is having to keep on slashing prices at the expense of profits to keep its head above water. And this situation is likely to get worse as Aldi and Lidl, value-focused rivalswhose sales rocketed 15.4% and 17.9%, respectively, in the last three months, get their ambitious expansion plans off the ground.
As a result, earnings at Sainsburys are anticipated to head 16% lower in the year to March 2016 alone. Consequently a second consecutive dividend cut is likely to be heading down the tracks. Indeed, the City expects last years dividend of 13.2p per share to fall to 10.7p in fiscal 2016.
Sure, a 4.4% yield may be tempting enough for many investors. But while intensifying competition continues to batter the bottom line and debt levels keep nudging steadily higher, I believe even more dividend cuts could be on the cards over at Sainsburys.
The lights are dimming
Like Sainsburys, I believe energy colossus Centrica (LSE: CNA) is not for the faint of heart thanks to its precarious revenue prospects.
The relentless rise of cheaper, independent suppliers has steadily crushed the British Gas owners customer base in recent years, their promotion-led strategies encouraging households to switch suppliers with increasing gusto.
On top of this, the firms Centrica Energy upstream division continues to suffer the effects of falling crude prices. Iindeed, Brent crude sank to fresh 11-year troughs of around $36 per barrel just last week. And the prospect of further dips would appear to be in the offing as insipid oil demand across the globe fails to suck up abundant supplies.
With Centrica predicted to endure an 8% earnings fall in 2015, the City expects the firm to cut the dividend for a second consecutive year. A proposed payment of 12p per share represents a sizeable reduction from 2014s 13.5p reward, although this still yields a very decent 5.7%.
Still, given Centricas patchy earnings outlook, I reckon the stock is a precarious selection for those seeking chunky long-term returns.
So if you’re looking for stocks with superior dividend prospects to Sainsbury and Centrica, I strongly recommend you check out this special Fool report that identifies what I believe is one of the hottest London-quoted dividend stocks money can buy.
Our BRAND NEW A Top Income Share From The Motley Foolreport looks at a hidden FTSE 250 star generating breakneck sales growth across the continent, and whose ambitious expansion plans should power dividends higher in the years ahead, according to the Fool’s crack team of analysts.
Click here to enjoy this exclusive ‘wealth report’– it’s 100% free and comes with no obligation.