Today I’m looking at the investment prospects of three popular payout picks
Make a packet
I reckon courier Royal Mail (LSE: RMG) is a great selection for dividend-hungry investors as parcels traffic rockets in the UK as well as across its GLS division in Europe.
And shrewd moves such as the acquisition of eCourier in November, a deal designed to bolster Royal Mail’s same-day delivery services, is helping the firm adapt its services to meet changing consumer demands and keep its competitors on the back foot.
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The City expects Royal Mail to follow a dividend of 21.7p per share in the year to March 2016 with a reward of 22.7p in 2017, figures that produce chunky yields of 4.6% and 4.9%, respectively. And I anticipate dividends to continue marching higher thanks to the firm’s falling cost base and a backdrop of rising package volumes.
Ship in a fortune
I also believe that Admiral (LSE: ADM) should remain a popular pick with income chasers as motor insurance premiums are back on the charge, while the firm’s recipe for retaining customers continues to reaps solid rewards. Its latest numbers show Admiral added 30,000 accounts year-on-year as of June.
Price comparison website Confused.com‘s car price insurance index released this week showed average motor insurance premiums leapt 7% between October and December, to £672. This was the highest quarterly increase for five years.
The number crunchers expect Admiral to furnish shareholders with a dividend of 95p per share in 2016, yielding a market-bashing 5.9%. While the insurer recently cautioned that Solvency II directives add a layer of uncertainty moving forwards, I believe Admiral’s strong market position should continue to produce terrific dividends in the years ahead.
Banking play under pressure
I’ve long advocated the investment case for banking colossus Santander (LSE: BNC) owing to its hefty exposure to emerging markets. The company currently sources around 40% of total profits from the promising growth regions of Latin America, and 19% from regional powerhouse Brazil.
These are undoubtedly destinations with terrific potential thanks to a combination of steadily-rising affluence levels and still-low banking product penetration. Indeed, Santander’s decision to purchase all outstanding shares of Banco Santander Brasil in 2014 illustrates the underlying strength of the market.
But while my long-term view of these markets remains undiminished, investors must be mindful of the implications of near-term macroeconomic troubles in South America for potential returns. Brazil is undergoing significant economic cooling thanks to the effects of tanking commodity prices, while a steadily-declining real is also striking Santander. Profits from the country dipped 11% in July-August thanks to a falling local currency.
The bank elected to rebase the dividend to 20 euro cents per share in 2015 back in January as it sought to shore up its capital position. And with rumours still circulating that Santander may be forced into fresh cash-raising initiatives, I reckon dividend growth this year and beyond could drag at the bank, regardless of whether or not it meets 2015’s forecast.
