Today I am looking at four London heavyweights expected to yield rich rewards.
Royal Dutch Shell
For the uninitiated, oil and gas goliath Royal Dutch Shell (LSE: RDSB) may prove an irresistible stock pick owing to its terrific dividend projections. Even the greenest investor will be aware of the massive upheaval facing the oil sector, so a slight dividend cut, to 185 cents per share for 2015 from 188 cents last time out, may not come as a surprise. Indeed, many eyes will be fixated on the subsequent yield of 7.8%.
But dig a little deeper and the picture at Shell is not all that rosy. Firstly, a predicted 34% earnings slide leaves the payout covered just 1.1 times, well below the safety standard of 2 times. On top of this, the firm’s vast capex cuts and job reductions underline the rate at which cash is flowing out of Shell — a particularly terrifying omen for dividend seekers — while prolonged oil price pressure threatens to keep earnings under the screw. I reckon current payout estimates could miss wildly.
TalkTalk Telecom Group
I am far more optimistic over the dividend potential of diversified entertainment services play TalkTalk (LSE: TALK), however. The ‘quad-play’ provider has struck back against rivals BT and Sky by offering unlimited broadband as standard on all of its internet packages, a move I believe should stem moderating uptake more recently.
Broadband is clearly a key battleground for the telecoms sector’s major players, so such a move — combined with the purchase of Tesco Broadband in January — is likely to boost its position in a very-profitable market. And with earnings expected to advance 66% in the 12 months ending March 2016 alone, TalkTalk is expected to hike the dividend to 15.7p per share from 13.8p in 2015, yielding a handsome 4.9%. I fully expect payouts to keep churning higher along with earnings.
Ashmore Group
Shares in financial services giant Ashmore (LSE: ASHM) have tracked relentlessly lower in recent months thanks to the firm’s strong emerging market bias. But while the threat of economic cooling in China still has some legs — not to mention fears over the timing of any Federal Reserve action — I reckon the long-term potential of these growth regions makes the business a terrific long-term bet.
And thanks to this bubbly outlook, the City believes Ashmore should keep its progressive dividend policy rolling. A reward of 16.65p per share for 2014 is expected to advance to 16.9p in the current period, even though a 16% earnings slide is currently slated, and yielding a monster 6.8%. While I believe such a payout could come under pressure if macroeconomic travails curb investor activity, I reckon dividends in the near term and beyond should still continue to outstrip those of the wider market.
Amec Foster Wheeler
Even though persistent bottom-line pressure across the oil industry is a blot on Amec Foster Wheeler’s (LSE: AMFW) earnings picture, I reckon the engineer’s expertise across a spectrum of industries should deliver solid dividend growth in the years ahead. Indeed, a healthy order book of £6.6bn as of June — up from £4.2bn a year earlier — underlines the company’s ability to grind out business even in times of wider industry pressure.
The number crunchers expect a 12% earnings decline in 2015 to have a detrimental impact on the dividend, however, and a predicted payment of 42.8p per share represents a downgrade from last year’s 43.1p. However, this figure still yields a market-busting 6%. And expectations of a bottom-line surge from next year is expected to get dividends trucking higher again, too. I believe Amec Foster Wheeler could prove a highly-lucrative stock selection for patient investors.
