AstraZeneca plc, BAE Systems plc And Imperial Brands PLC Show Great Dividend Potential

Are AstraZeneca plc (LON: AZN), BAE Systems plc (LON: BA) and Imperial Brands PLC (LON: IMB) dividends among the best?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Very high dividends are great, but if they’re pushing the limits of a company’s earnings or dragging down its balance sheet then they’re always at risk of a cut. The most recent major casualty has been Barclays, which has decided to slash its 2016 dividend by more than 50%.

I reckon the best approach is to look for progressive dividends that have great long-term potential rather than today’s risky highest flyers, and I see one just like that in AstraZeneca (LSE: AZN).

Prudent dividend cover

AstraZeneca has been through a period of falling earnings as the loss of some lucrative patents expired and competition from generic drugs has intensified. But thanks to its prudence in having kept its dividend very well covered in the good times, there has been enough headroom to keep the payments going. The dividend has been kept flat since 2011, but still yielded 4.3% in 2015, and that seems like a solid one to me.

Should you invest £1,000 in Blackrock World Mining Trust Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Blackrock World Mining Trust Plc made the list?

See the 6 stocks

Although there’s a further modest drop in earnings per share forecast for the current year, 2017 should be the pivot year that turns AstraZeneca back into earnings growth, and analysts are expecting the dividend to be held steady for the two years — and it would still be covered around 1.4 times, which seems adequate if not ideal. With the shares at 4,059p, we’d see a yield of 4.8%.

At 2015 results time, the company reaffirmed its commitment to a progressive dividend policy, so we should be seeing a return to dividend rises in the not-too-distant future.

Profit from defence

BAE systems (LSE: BA) might not be everyone’s top pick for dividends, but with a yield of 4.2% it’s easily beating the FTSE 100 average of around 3%, and it’s been keeping pace with inflation in recent years. Earnings have been a bit erratic since the global slowdown has put a cap on defence spending, and the shares are down 9% since last March’s peak, to 502p. But over five years we’ve seen a 55% rise against a pathetic 5% for the FTSE, so BAE is beating the index on that score too.

What’s really important for reliable dividends is that cover by earnings looks comfortable at a close to two times. The firm’s policy is very much in line with the needs of steady income seekers too, after we heard at results time that it “plans to pay dividends in line with its policy of long-term sustainable cover of around two times underlying earnings and to make accelerated returns of capital to shareholders when the balance sheet allows“.

Cash and growth

If you’re looking for a share that can provide strong capital growth in addition to progressive dividends, Imperial Brands (LSE: IMB) might fit the bill. The purveyor of the deadly weed has recently changed its name from Imperial Tobacco, and though that might make its name seem less horrid, there’s no need to disguise its market performance — the share price has put on 48% in just two years, rising  to 3,688p, which is a handy bonus for those buying for income.

Last year’s dividend provided a yield of 4.1%, covered 1.5 times, and with earnings forecast to keep on rising we have dividend yields of 4.2% and 4.6% forecast for this year and next — motoring along well ahead of inflation. And again, Imperial Brands has a progressive dividend policy, speaking at results time of its “commitment to growing shareholder returns“.

5 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report5 Shares for the Future of Energy — and discover:

  • Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
  • How to potentially get paid by the weather
  • Electric Vehicles’ secret backdoor opportunity
  • One dead simple stock for the new nuclear boom

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended AstraZeneca and Barclays. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

At $184, I reckon this S&P 500 juggernaut is still on sale

Our writer sees Amazon (NASDAQ:AMZN) as an attractive S&P 500 stock to consider while it is priced 23% lower than…

Read more »

Investing Articles

Cheap FTSE 250 shares to consider buying right now?

These FTSE 250 growth stocks had weak starts to 2025, and face short-term uncertainty. But their long-term valuations could be…

Read more »

Investing Articles

As stocks dive, is this a rare chance for ISA investors to build generational wealth?

Globally, stocks have pulled back significantly following the announcement of tariffs by the US president. Is this an opportunity for…

Read more »

Investing Articles

2 ultra-cheap shares to consider right now!

These cheap UK shares offer considerable growth and income potential over the long term, reckons our writer Royston Wild.

Read more »

Investing Articles

Legal & General Group shares go ex-dividend on 24 April – time to grab that 9% yield?

Harvey Jones holds Legal & General Group shares and is already looking forward to the next bumper dividend from this…

Read more »

Young female analyst working at her desk in the office
Investing Articles

3 FTSE 100 dividend stocks to consider buying while they’re on sale

Paul Summers reckons canny investors should think about snapping up quality, dividend-paying stocks while they're going cheap

Read more »

Investing Articles

2 cheap passive income shares to consider buying right now

The passive income we can earn from the UK stock market looks set to climb this year, and could even…

Read more »

Investing Articles

Down 15% in a month, this FTSE 100 dividend share offers investors a stunning 10.8% yield

Harvey Jones plucks out a FTSE 100 dividend share that offers frankly a quite staggering yield and is now a…

Read more »