Today I am looking at the investment prospects of three big FTSE 100 payers.
Vodafone Group
Thanks to its colossal investment drive, I believe that telecoms giant Vodafone (LSE: VOD) should deliver smashing shareholder returns well into the future. The company has a stellar record of shelling out market-bashing yields, and this trend is not expected to cease any time soon, as earnings begin to turn around.
All is not quite rosy in the garden, however, as the effect of this massive organic capital expenditure — not to mention the possibility of further M&A activity — puts pressure on the balance sheet and puts paid to Vodafone’s progressive dividend policy. A payout of 11.22p per share in the 12 months to March 2015 is expected to rise to 11.5p in both fiscal 2016 and 2017.
However, these projections still create a monster yield of 5.4%, blowing the FTSE 100 average of around 3.5% clean out of the water. And I expect the impact of the firm’s Project Spring investment programme on its 3G and 4G services, as well as voice data capabilities, in Europe and across Asian markets to propel earnings and subsequently dividends higher again in the longer-term.
Rio Tinto
I am not as optimistic concerning the payout potential of munched-up mining play Rio Tinto (LSE: RIO), however. Bellwether metal copper’s current position around $5,100 per tonne, sitting at current one-month lows, illustrates the insipid investor confidence still washing across commodity markets.
And with economic data from resources glutton China continuing to disappoint — the country’s factory activity drooped for an eighth successive month in October — and most commodity sectors already swimming with excess material, I do not expect the situation to improve any time soon. As a consequence Rio Tinto is expected to suffer earnings dips of 48% in 2015 and 8% in 2016.
Despite this backcloth, the City still believes the mining giant will produce a dividend of 227 US cents per share in 2015, rising from 215 cents last year, giving a yield of 6.3% . And a payout of 234 cents is projected for next year, creating a chunky 6.4% yield.
But with dividend cover standing at a meagre 1.2 times for this year alone, Rio Tinto languishing under a gigantic $13.7bn (and rising) net debt pile, and supply/demand balances continuing to worsen, I reckon dividends are likely to disappoint in the near-term and beyond.
Legal & General Group
Due to the surging popularity of its products across the globe, I believe life insurance leviathan Legal & General (LSE: LGEN) is primed to deliver delicious dividend flows well into the future.
The London company saw assets under management stride 12% higher during January-June, to £714.6bn, illustrating the firm’s tremendous success in adapting to changing demographic and regulatory such as ageing populations, welfare reforms and increased digitalisation. On top of this, dividend chasers should be buoyed by Legal and General’s terrific cash generation record — net cash increased 11% in the period, up to £629m.
Legal and General is anticipated to keep its post-restructuring earnings momentum rolling with expansion of 15% in 2015 and 6% in 2016. Against this bubbly backdrop last year’s dividend of 11.25p per share is expected to leap to 13.4p in 2015, and again to 14.3p in the following period. With the company boasting subsequent yields of 5.1% and 5.5% for 2015 and 2016 respectively, I reckon the insurance heavyweight is a great pick for growth and income seekers alike.
