Today I am looking at the payout prospects of three London-listed high yielders.
HSBC Holdings
Banking mammoth HSBC (LSE: HSBA) (NYSE: HSBC.US) has given investors little reason for cheer over the past year or so due to a combination of persistent revenues pressure and fears over escalating legal bills. It is the latter in particular which continues to shake the markets, so Standard and Poor’s recent warning that HSBC, together with Barclays, RBS and Lloyds face £19bn worth of misconduct charges between them through to the end of 2016 will have done nothing to calm the nerves.
The issue of mounting financial penalties is likely to remain a concern for some time to come, particularly as the activities of its Swiss division draws ire from regulators across the globe. Still, I believe that the bank’s huge footprint in emerging regions — HSBC draws 70% of pre-tax profit from Asia, the Middle East and North Africa — should deliver solid earnings, and with it dividend, growth in the coming years. As well, the bank’s healthy CET1 capital ratio of 11.2% should soothe shareholder concerns over the payout, while further asset divestments and cost-cutting should boost cash reserves further.
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In the meantime, the City expects a 25% earnings boost in 2015 to propel the full-year dividend from 50 US cents last year to 53 cents, producing a chunky yield of 5.3%. And a 6% bottom-line boost in 2016 is predicted to support a payment of 55 cents, resulting in an appetising 5.5% yield.
BHP Billiton
I am convinced that persistent pressure across BHP Billiton’s (LSE: BLT) core markets will lead to a significant deterioration in the digger’s payout prospects. Although the company, alongside Rio Tinto and Vale, seems content to run its iron ore competitors into the ground by flooding the market with low-cost supply, when you factor in the effect of chronic oversupply across the copper, coal and petroleum sectors, the earnings outlook looks for the business is less than promising.
These problems are expected to drive earnings 46% lower in the 12 months ending June 2015, and an extra 16% drop is forecast by the number crunchers in 2016. Yet despite these problems, BHP Billiton is predicted to keep the annual dividend hurtling higher, and last year’s 121-US-cent-per-share reward is expected to climb to 127 cents in 2015 and to 134 cents next year. Consequently the mining play sports gigantic yields of 5.2% and 5.5% for 2015 and 2016 correspondingly.
But these figures simply don’t add up, in my opinion. Like its major mining peers, BHP Billiton is desperately scaling back on capital expenditure and selling off assets to strengthen the balance sheet. And with this year’s estimated dividend covered just 1.2 times by prospective earnings, well below the security watermark of 2 times, and next year’s payment actually exceeding predicted earnings of 122 cents per share, I believe investors can take these dividend projections with a rather large pinch of salt.
Ashmore Group
Unlike BHP Billiton, I reckon that Ashmore (LSE: ASHM) is in great shape to keep its progressive dividend policy rolling. An emphasis on emerging markets has seen investor appetite dwindle more recently due to cyclical problems in these places, an issue which has also hit product performance — indeed, assets under management dropped 4.1% during January-March, to $61.1bn.
Still, the City’s band of analysts expect Ashmore to lift a payment of 16.45p per share for the year concluding June 2014 to leap to 17.2p per share in the current period, supported by a 9% earnings improvement. And even though the bottom line is anticipated to dip 4% in 2016, Ashmore’s terrific earnings prospects for the coming years — not to mention its exceptional cash-generative qualities — is anticipated to push the payment to 17.9p.
Consequently the investment management play sports bumper yields of 5.4% for 2015 and 5.6% for 2016. Although some market uncertainty remains, particularly as questions remain as to the intentions of the Federal Reserve, a reduction in the size of net outflows suggests that the tide could be turning in Ashmore’s favour. And in the long-term, I believe the rising financial might of the world’s developing nations should underpin long-term earnings and dividend strength at the firm.
