Today I am looking at four of the FTSE’s best dividend plays.
British American Tobacco
The tobacco sector has long been sought after by those seeking bumper dividend flows. Even though recent legislative changes — most pertinently the rise of plain packaging in Western markets — has whacked the industry’s image further in recent years, the formidable attraction of British American Tobacco’s (LSE: BATS) products gives it terrific earnings visibility that has helped it to keep payments rolling higher.
So even in spite of rare earnings slips, like that seen last year, the London firm has the confidence, not to mention the abundant cash flows, to keep dividends charging higher. And with cyclical headwinds in key developing markets abating, solid bottom-line growth from here on in is expected to power British American Tobacco’s dividends from 148.1p per share last year to 158.5p in 2015 and 162.3p in 2016. Consequently the firm sports huge yields of 4.4% and 4.5% for these periods.
Marks & Spencer Group
British shopping institution Marks & Spencer (LSE: MKS) scared the market last week when it announced the much-awaited recovery at its Womenswear division had stalled. Still, I have been a long proponent of the firm’s long-term investment case, with Marks and Sparks’ massive investment in its fashion ranges; improving consumer spending on the UK High Street; and growing exposure in lucrative emerging regions set to drive shareholder returns higher.
When you throw in the robust momentum of Marks & Spencer’s Food division and vastly-improved online offering, I reckon the London firm is a strong pick for both growth and income hunters. This view is shared by the City, and swelling profits from this year are expected to propel the dividend from 18p in the year closing March 2015 to 18.9p this year and 20.5p in 2017, creating chunky yields of 3.5% and 3.8% correspondingly.
Royal Mail
Supported by a programme of massive restructuring, I believe that a steadily-improving balance sheet at Royal Mail (LSE: RMG) should underpin terrific dividend expansion in the years ahead. Not all is green in the garden, however, with the letters market in terminal decline and competitive pressures enduring. But in the long-term I believe the recent capitulation of competitors like Whistl and City Link, combined with surging package traffic thanks to the rise of online shopping, should deliver brilliant earnings growth both at home and abroad.
This view is shared by the number crunchers, and Royal Mail is expected to charge the full-year payout from 21p in the 12 months concluding March 2015 to 21.6p in 2016 and 22.6p the following year. Consequently the courier boasts tremendous yields of 4.2% for the current year and 4.4% for 2017.
Halfords Group
Supported by a vastly-improved earnings outlook, Halfords (LSE: HFD) has put to bed the dividend travails of recent years, a period which saw the dividend cut not once but twice since 2012. The Redditch firm’s decision to prioritise investment to revamp its stores and improve its internet footprint has paid off handsomely, and bike and car accessory sales continue to click through the gears.
As well, Halfords continues to wheel out new products and brands to cement its place as THE go-to place for things on wheels. And supported by strong retail conditions, the City expects the company to keep its reborn dividend policy back on track, with an expected payout of 17.8p per share for the year ending March 2016 — up from 16.5p last year — predicted to rise to 19.2p in 2017. As a result a yield of 3.2% rises to 3.5% next year.
