Standard Life (LSE: SL) has transformed itself into an income champion over the past five years. The company’s shift to a fee-based business model has led to a tripling of cash flow generated from operations since 2010. Assets under management have risen by 50% over the same period.
This growth has helped support the company’s dividend payout growth. Since 2011 Standard’s dividend payout has increased at a steady rate of 7% per annum. Since 2010 Standard Life has returned 147p per share to investors, including the recent special dividend and over five years the shares have produced a total return of 180%. Based on the estimated growth of the UK pension market, the next five years could see a similar performance.
Standard Life trades at a forward P/E of 16.8 and supports a yield of 4.6%. Earnings per share are predicted to grow by 48% this year.
Dividend concerns
GlaxoSmithKline’s (LSE: GSK) shares have sunk to a four-year low on fears about the sustainability of the company’s dividend payout. However, to a certain extent, these concerns are unfounded.
Management has stated that the company’s dividend of 80p per share is safe for the next three years. A special dividend of 20p per share payable during the fourth quarter will take the total payout for 2015 to 100p per share, a yield of 7.9% based on Glaxo’s current share price.
Glaxo currently trades at a forward P/E of 16.9 and supports a yield of 7.2%. Earnings per share are predicted to shrink by 21% this year.
Slow and steady
Last year, SSE (LSE: SSE) made a commitment to target an increase in the full-year dividend for 2015/16 of at least RPI inflation, with annual increases thereafter of at least RPI inflation also being targeted.
This is hardly the most impressive dividend policy. The RPI measure of inflation has averaged 1% this year, so investors won’t see much in the way of a dividend increase at all.
Nevertheless, for the conservative dividend investor SSE’s dividend policy is ideal. The payout is covered 1.2 times by earnings per share and due to the nature of SSE’s business, the company has a certain degree of clarity over its revenue streams. As a result, it’s unlikely management will suddenly take an axe to the dividend.
SSE currently trades at a forward P/E of 12.6 and supports a yield of 6.2%. Earnings per share are predicted to shrink by 10% this year.
Changing business model
Centrica (LSE: CNA) has already cut its dividend payout once this year. However, according to City projections the new, lower payout is now covered one-and-a-half times by earnings per share, leaving plenty of room for manoeuvre.
What’s more, management’s recent decision to scale back Centrica’s upstream business is a great move for the company. Oil & gas production is a notoriously volatile and capital intensive business. Focusing on the more predictable customer-facing side of the business should put Centrica back on the path to long-term sustainable growth.
Also, Centrica’s focus on the more predictable customer side of the business should help the company maintain and increase its dividend over time.
Centrica currently trades at a forward P/E of 12.5 and supports a yield of 5.4%. Earnings per share are predicted to shrink by 7% this year.
