Today I am looking at the payout prospects of four FTSE-listed giants.
BAE Systems
Thanks to its top-tier supplier status with the US and UK governments, I believe BAE Systems (LSE: BA) should deliver solid dividend growth as defence budgets ramp up and rising geopolitical tensions prompt the West to get their military toys out of the box. Indeed, the company’s strong relationship with the Department of Defense was underlined last week with the awarding of a $45m contract to supply lightweight armour to the US Army.
With BAE Systems’ cutting-edge products also enjoying improving demand from non-UK and US clients, the City expects the arms play to enjoy a marginal bottom-line rise in 2015, followed by a 5% uptick in the following year. Consequently BAE Systems is expected to lift 2014’s dividend of 20.5p per share to 20.8p this year and to 21.5p in 2016, yielding an impressive 4.7% and 4.9% correspondingly.
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Aberdeen Asset Management
Financial services play Aberdeen Asset Management (LSE: ADN) has endured sustained share price weakness in recent months due to its heavy emerging-market bias. The stock has plunged to three-year lows on the back of enduring concerns over a Chinese economic ‘hard landing’, a phenomenon that has prompted investors to reduce their exposure to the Asian region — Aberdeen Asset Management subsequently recorded net outflows of £9.9bn during January-June.
Still, the business remains bullish over the long-term potential of these new regions, exemplified by its acquisition of Advance Emerging Capital this month. So although Aberdeen Asset Management is expected to see earnings slip 6% in 2015 and 4% in 2016, the firm’s bubbly bottom-line outlook for the years ahead is expected to keep driving dividends higher — last year’s 18p per share payment is anticipated to rise to 19.4p this year and to 20.6p in 2016, yielding 5.9% and 6.2% respectively.
Old Mutual
Like Aberdeen Asset Management, I am convinced life insurance play Old Mutual (LSE: OML) should benefit from its vast presence in developing regions. The company’s operations span the length and breadth of Africa, encompassing regional powerhouses like Nigeria, South Africa and Kenya. With personal wealth levels in these places steadily improving, and insurance product penetration still relatively low, I expect dividends to surge along with earnings well into the future.
Old Mutual saw assets under management rise 5% during April-June, to £335.7bn, illustrating the underlying strength of the firm’s markets. And with earnings predicted to advance 5% and 9% in 2015 and 2016 correspondingly, Old Mutual is expected to produce a dividend of 9.6p per share this year and 10.3p in 2016, increasing from 8.7p in 2014. As a result the insurer carries huge yields of 5% for 2015 and 5.4% for 2016.
Petrofac
I am not so bullish over the payout prospects over at oil and gas hardware provider Petrofac (LSE: PFC), however, thanks to the strong possibility of prolonged crude price weakness. The Brent benchmark remains perilously perched below the $50 per barrel mark, prompting industry experts to predict fresh plunges to multi-year lows as the oil supply/demand balance worsens. Naturally the signs are not good for capital expenditure budgets as producers scale back to conserve cash.
As a consequence the City expects Petrofac to reduce a dividend of 65.8 US cents per share in both 2013 and 2014 to 59.1 cents this year, although this still yields a handsome 4.9%. But with this payment actually exceeding estimated earnings of 53 cents, and the engineer’s debt pile creeping steadily higher, I believe investors should resist being suckered in. And given the worsening oil sector backdrop, I believe a projected payout flip in 2016 — to 61.1 cents per share, yielding 5.1% — should also be given scant regard.
