Tuesday 20 June 2017

Risky FTSE100 Dividend Shares?


The DIY Income Investor likes shares that pay dividends - effectively investments that pay you an income while they (hopefully) go up in value.

And what could be safer than buying shares in the biggest dividend-paying companies quoted on the London Stock Exchange?

Buyer beware! Big is not always beautiful.

Today's article in The Telegraph includes some interesting analysis of some of the most popular FTSE 100 dividend-paying shares and highlights the importance of looking at:
  • dividend cover
  • free cashflow
  • the level of debt relative to assets
  • debt cover
  • price / earnings ratio
This is the sort of due diligence that we should all be undertaking before buying (although I hold my hand up and admit I'm not always as thorough as I should be).

An analysis is provided of 10 companies whose dividends might be at risk, quoted below:
2017 estimated dividend yield (%) Forecast dividend cover (x) 2017 estimated price-to-earnings ratio Operating free cashflow cover (x) Net debt to cash £m Interest cover (x)
Vodafone 5.50% 0.60 x 30.1 x 2.15 x 23,787.40 5.0 x
BP 6.60% 0.82 x 18.4 x 1.07 x 31,812.60 -0.2 x
Royal Dutch Shell 6.80% 0.91 x 1.6 x 0.14 x 29,377.90 3.2 x
Admiral 5.30% 0.98 x 19.3 x -0.02 x (103.0) 29.5 x
Land Securities 4.70% 1.00 x 21.2 x 0.95 x 2,919.00 2.6 x
St James's Place 3.30% 1.10 x 27.6 x 1.84 x -7,132.00 19.1 x
Hargreaves Lansdown 2.80% 1.10 x 31.9 x 0.82 x -211 220.0 x
United Utilities 4.10% 1.12 x 21.8 x 1.22 x 7,136.00 3.0 x
SEGRO 3.30% 1.17 x 26.3 x 0.48 x 1,644.00 4.6 x
British Land 4.70% 1.18 x 17.8 x 0.10 x 3,167.00 2.8 x

Source: Company accounts, Digital Look, consensus analysts’ forecasts

The commentary in the article highlights that, even with this level of analysis, you still need to consider other factors and make a judgement call.

Of the companies identified above, I hold only BP and Shell - and I'm happy to continue, although why I've ended up with small holdings in two oil giants, I'm not sure...

As always, the moral is - Do Your Own Research!

I am not a financial adviser and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.


  1. It would be nice if Shell really paid 68% dividend this year. But unlike Electra, for example, it won't, unless you know something different. 6.8% is more likely!

    1. Well spotted - the error was in the original article!