Fear over a cooling retail sector has smashed investor demand for N Brown Group (LSE: BWNG) in recent months.
And a constant stream of patchy retail-related gauges has done little to steady the nerves. Indeed, the latest Thomson Reuters/Ipsos consumer sentiment gauge released this week slipped to 49.2 in August from 49.4 last month. This is the lowest reading since early 2014.
Regardless of the impact of Brexit on shopper spending in the months ahead, however, I reckon N Brown’s niche lines should allow it to hurdle the worst of these troubles — demand for the retailer’s so-called ‘power brands’ like plus-size division Simply Be continues to chug higher. That’s not to say revenues won’t experience some trouble should the UK dive into recession, of course.
N Brown is expected to shell out a dividend of 14p per share in the year to February 2017, resulting in a bulky 7.4% yield. But investors should be aware that dividend cover stands at 1.6 times, below the widely-regarded safety benchmark of 2 times.
I remain bullish on N Brown’s long-term outlook, particularly given significant restructuring to bolster its online operations. Still, I reckon there’s scope for dividend forecasts to disappoint in the near future.
Solid foundations
Despite the patchy state of the construction sector, I believe Galliford Try (LSE: GFRD) — like N Brown — remains a solid stock pick for patient investors.
The full implications of June’s EU referendum are yet to be calculated, although the result is creating havoc for Britain’s builders. Indeed, data just today showed the construction sector slipping into recession for the first time in four years after the release of disappointing Q2 numbers.
Galliford Try itself has commented that “recent political events create a backdrop of uncertainty for the new financial year.” But I believe the robustness of the housing market — still supported by favourable lending conditions and a shortage of available properties — maintains the firm’s position as a dependable stock in volatile times.
Galliford Try is predicted to throw out a 99.7p per share dividend in the period to June 2017, leaving a market-mashing yield of 9.7%. Dividend cover stands at a meagre 1.5 times, but I believe the company’s robust balance sheet and healthy order pipeline leaves the firm in good stead to meet current forecasts.
On shaky ground?
I’m less bullish over the near-term dividend prospects of real estate investment trust (REIT) Redefine International (LSE: RDI), however.
As I mentioned, the possibility of significant headwinds for the British retail sector could have serious knock-on ramifications for Redefine International, even though the firm has embarked on massive portfolio restructuring to maximise returns. And potential problems in the commercial sector could cause further headaches should Britain slip into recession.
The property play is expected to generate a dividend of 3.3p per share in the period to August 2017, creating a yield of 7.6%.
This would fall in line with REIT rules that 90% of earnings must be distributed to shareholders, should current bottom-line forecasts be met. But should the bottom line suffer severe headwinds over the next year, I reckon this projection could find itself under heavy pressure.
