Vodafone has just slashed the payout! Could this FTSE 100 dividend stock be next?

Vodafone Group plc (LON: VOD) just hacked back the dividend. Royston Wild explains why it may not be the only FTSE 100 (INDEXFTSE: UKX) stock to take the knife to shareholder rewards.

| 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.

It’s fair to say the investment community had widely been expecting Vodafone Group to hack down the dividend sooner rather than later. It’s why its share price had fallen 36% over the 12 months to Tuesday, the day on which news emerged that payouts were to be rebased.

The FTSE 100 firm slashed the full-year dividend for the fiscal year to March to 9 euro cents per share, the impact of a vastly-reduced final payment pushing the total dividend 40% lower year-on-year. But I believe Vodafone isn’t the only blue-chip business that’ll be taking the hatchet to dividends in the next few quarters.

Sales still failing

Kingfisher (LSE: KGF) is one Footsie business I’ve been tipping for a dividend cut recently as it flounders in its key markets of the UK and Ireland and France.

It was forced to lock the dividend in the 12 months to January at 10.82p per share in reflection of its enduring top-line troubles, and the number crunchers are expecting the exact same reward in the current year. However, the chances of a reduced dividend have grown even further following the DIY retailer’s latest trading details released today.

In a first-quarter update, Kingfisher’s ability to turn around its flagging fortunes has once again come under scrutiny, a 0.8% improvement in like-for-like sales at group level falling well short of consensus expectations above 1.5%. This was a particularly disappointing result given the weak comparatives of the February-April period of last year too.

Across its UK stores, like-for-like sales rose 3.4% in the three months, although Kingfisher fared much worse in France where underlying revenues dropped 3.7%. The disruption of the firm’s long-running ‘Kingfisher One’ transformation strategy on revenues, a calamitous programme that’s claimed the scalp of chief executive Véronique Laury, is yet to run out of steam. And in an environment of weak consumer spending on both sides of the English Channel this is proving particularly catastrophic.

Better dividend buys!

As I type, City analysts are expecting earnings to rebound 18% in the current year, though in the wake of Wednesday’s worrying trading numbers, expectations that Kingfisher will charge back into growth following the drops of recent years are likely to be scaled back quite spectacularly.

So what does this mean for the expected dividend? Well dividend cover currently stands at a healthy 2.2 times. But given the probability of reduced earnings forecasts, I’m basically unmoved by this figure. Indeed, I’m much more concerned by the company’s increasingly fragile balance sheet — net cash fell by almost a third in the last fiscal year to £48m — and the double whammy that increasing costs and insipid sales growth is creating.

I’d encourage investors to forget about Kingfisher’s chubby 4.6% dividend yield, then. There’s plenty of bigger yielders with stronger profits outlooks and better balance sheets to pick from today, many of which can be found on the FTSE 100 too.

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.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

How much would I need to invest in income shares to earn £300 a month?

What kind of lump sum would be required to earn £300 a month by taking advantage of some of the…

Read more »

Investing For Beginners

Up 31% in a month, could this FTSE 250 stock be getting bought out?

Jon Smith takes a look at speculation that's pushing the share price of a FTSE 250 share higher and considers…

Read more »

Investing Articles

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »