"UK dividends unsustainable"

[Bouleversee]

" Income stocks set to struggle as share prices fall, says broker".

"Investors should proceed with caution when buying UK income stocks, as the high dividends they offer may be unsustainable", according to broker AJ Bell. It goes on to say that companies such as Persimmon and Centrica are now sitting on forecast dividend yields of more than 9 per cent, signalling high potential income to investors but this is not because the divs. have risen but because their s.ps. have fallen sharply and that many of them are not on track to generate enough revenue to cover their dividends more than two times over, so if they run into trouble this year, investors could see their dividends cut too.

Well, I think we knew that, didn't we, but having just received a massive div. from Persimmon and benefitted from a huge price increase over the years, I wouldn't be too heartbroken if it dropped a bit from 9% in the current year though I should be a bit surprised. Centrica is another matter. I read last week that it was likely to cut its dividend, which I think is rather more likely, and as I am losing a lot on that holding, I should feel a bit peeved.

I don't think we can generalise and will have to wait and see. However, I certainly won't be buying more of the very high yielders at this moment.

https://www.ft.com/content/cb2c026c-3d9 ... 972418fec4

(I think the FT allows you to read the odd article even if you are not a subscriber)

[monabri]

Centrica - fair comment but is this the case with Persimmon? Their yield was in the 5 to 6% range and then increased to well over 8% about March 18 time when PSN hiked the "interim 1" dividend from 25p to 125p. [annual divi increased by 74% from previous year].

From the analysis given in SimplyWallStreet, all is more than than tickety-boo with PSN.


p.s. current share price is approx 8% lower than the 5 year maximum 2890p (Oct 26th 2017).

[Walrus]

" Income stocks set to struggle as share prices fall, says broker".

"Investors should proceed with caution when buying UK income stocks, as the high dividends they offer may be unsustainable", according to broker AJ Bell. It goes on to say that companies such as Persimmon and Centrica are now sitting on forecast dividend yields of more than 9 per cent, signalling high potential income to investors but this is not because the divs. have risen but because their s.ps. have fallen sharply and that many of them are not on track to generate enough revenue to cover their dividends more than two times over, so if they run into trouble this year, investors could see their dividends cut too.

Well, I think we knew that, didn't we, but having just received a massive div. from Persimmon and benefitted from a huge price increase over the years, I wouldn't be too heartbroken if it dropped a bit from 9% in the current year though I should be a bit surprised. Centrica is another matter. I read last week that it was likely to cut its dividend, which I think is rather more likely, and as I am losing a lot on that holding, I should feel a bit peeved.

I don't think we can generalise and will have to wait and see. However, I certainly won't be buying more of the very high yielders at this moment.

https://www.ft.com/content/cb2c026c-3d9 ... 972418fec4

(I think the FT allows you to read the odd article even if you are not a subscriber)

I've read a couple of articles in this vein that UK income is overvalued because of the demand for income in a low interest rate environment and UK pensioners are ploughing into what are effectively high yield junk bonds, and I agree it is something that as a soundboard makes a lot of sense.

For me as probably a tad contrarian in my approach, provided the divi cover is there, and the accounts are not being fiddled i actually think valuations look reasonable.

[UncleEbenezer]

Centrica - fair comment but is this the case with Persimmon? Their yield was in the 5 to 6% range and then increased to well over 8% about March 18 time when PSN hiked the "interim 1" dividend from 25p to 125p. [annual divi increased by 74% from previous year].

From the analysis given in SimplyWallStreet, all is more than than tickety-boo with PSN.


p.s. current share price is approx 8% lower than the 5 year maximum 2890p (Oct 26th 2017).

They're both heavily dependent on political whim. And hence, political risk. Handle with care!

[idpickering]

PSN I only brought on board last Monday, and am not overly concerned. CNA, no thanks. I always found them to be unreliable both as a company, and good dividend producer.

Ian.

[idpickering]

PSN I only brought on board last Monday, and am not overly concerned. CNA, no thanks. I always found them to be unreliable both as a company, and good dividend producer.

Ian.

Sorry, I should add that I may well top up my PSN holdings next month.

Ian.

[Dod101]

I've read a couple of articles in this vein that UK income is overvalued because of the demand for income in a low interest rate environment and UK pensioners are ploughing into what are effectively high yield junk bonds, and I agree it is something that as a soundboard makes a lot of sense.

UK income cannot be overvalued if the yield is over 9%! I do not hold either but the market obviously thinks that Centrica at least is heading for a dividend cut. I think it may well be right.

Dod

[scrumpyjack]

In the case of PSN the current dividends are described by management as 'returns of capital' and as such signalled as a series of one offs, not a level of sustainable dividend recurring in the long term.

The huge increase announced recently is partly an attempt to placate investors outrage at the CEO's £100m gains from their idiotic executive bonus scheme.

[Lootman]

The huge increase announced recently is partly an attempt to placate investors outrage at the CEO's £100m gains from their idiotic executive bonus scheme.

Which those same investors presumably approved at a shareholder vote?

I've held PSN for a number of years and it has done very well for me. I don't care if the CEO made £100m. Good luck to him.

[jackdaww]

In the case of PSN the current dividends are described by management as 'returns of capital' and as such signalled as a series of one offs, not a level of sustainable dividend recurring in the long term.

The huge increase announced recently is partly an attempt to placate investors outrage at the CEO's £100m gains from their idiotic executive bonus scheme.

======================

i have avoided PSN mainly because of the fatcat ambience there.

[Bouleversee]

PSN have done extremely well for me, too, unlike TW who have lost me money and sold dodgy leaseholds to the buyers of their properties. I know which one I prefer.

[scrumpyjack]

Well I've done incredibly well too from PSN, as also from Barratt, but I voted against the bonus scheme which seemed appallingly one sided to me but nobody in the city seemed to mind. It effectively gave 10% of the company to a few execs.

I have no problem with a fair bonus scheme giving good rewards for exceptional results, but the PSN scheme gave ludicrously high rewards for the sector wide recovery of housebuilders and not PSN doing better than their competitors.

But my post was not about this. I simply pointed out that the current dividends are stated by management as 'returns of capital' and were then more than doubled just after the £100m hoo ha.

It would be unwise to regard this level of payout as a reliable long term sustainable level.

[Cornytiv34]

I have recently taken out a subscription to “Private Eye” after buying a couple of issues from the paper shop and and being intrigued by the content of some articles. I was surprised at the comments and disclosures alleged applying to both National and Local Government and Companies quoted on the Stock Exchange.

Taking everything with a large pinch of salt there are some worrying comments/allegations about both Carillion and Persimmon in the “In the City” pages in Issue 1462 (26.1.- 8.2.18), Issue 1461 23.2. - 8.3.18. and Issue 1465 (9.3 - 22.3.18).

Carillion related among many things to the removal of the ability to claw back bonuses if the company collapsed. The appointment of The Official Receiver as liquidator rather than movement into administration with one of the usual accounting firms handling.

Persimmon related to the failure to cap long term investment awards and advancing the date the awards would be available. Awards would be available in 4 months instead of in January 2022. Also commented upon is the special dividends for the next three years.

I have never thought of this magazine being of use in looking further when making investment decisions.
Sorry if this is not the correct board but I would appreciate any guidance.



Cornytiv34

[MDW1954]

I have recently taken out a subscription to “Private Eye” after buying a couple of issues from the paper shop and and being intrigued by the content of some articles. I was surprised at the comments and disclosures alleged applying to both National and Local Government and Companies quoted on the Stock Exchange.

Taking everything with a large pinch of salt there are some worrying comments/allegations about both Carillion and Persimmon in the “In the City” pages in Issue 1462 (26.1.- 8.2.18), Issue 1461 23.2. - 8.3.18. and Issue 1465 (9.3 - 22.3.18).

Carillion related among many things to the removal of the ability to claw back bonuses if the company collapsed. The appointment of The Official Receiver as liquidator rather than movement into administration with one of the usual accounting firms handling.

Persimmon related to the failure to cap long term investment awards and advancing the date the awards would be available. Awards would be available in 4 months instead of in January 2022. Also commented upon is the special dividends for the next three years.

I have never thought of this magazine being of use in looking further when making investment decisions.
Sorry if this is not the correct board but I would appreciate any guidance.

Cornytiv34

I have been a subscriber to Private Eye for many, many years, and a regular reader since the 1970s.

Frankly, *don't* take everything with a pinch of salt. Believe me, if there were errors, lawyers wouldn't be slow in responding! Be aware, though, that sometimes what you're reading is non-sueable "hints" rather than explicit allegations.

And, of course, the best stuff is always to be found on page 94.

MDW1954

[Alaric]

The appointment of The Official Receiver as liquidator rather than movement into administration with one of the usual accounting firms handling.

The explanation was that it was so broke that nothing of value remained to finance the usual fat fees of the accounting firms. The question that may never be answered is as to how it got an audit sign off of its accounts whilst in retrospect almost bankrupt and certainly reliant on being able to borrow to finance urgent expenditure such as director's earnings.

[MDW1954]

The appointment of The Official Receiver as liquidator rather than movement into administration with one of the usual accounting firms handling.

The explanation was that it was so broke that nothing of value remained to finance the usual fat fees of the accounting firms. The question that may never be answered is as to how it got an audit sign off of its accounts whilst in retrospect almost bankrupt and certainly reliant on being able to borrow to finance urgent expenditure such as director's earnings.

Actually, MDW1954 *didn't* write that. Please quote more carefully!

MDW1954

[idpickering]

PSN have done extremely well for me, too, unlike TW who have lost me money and sold dodgy leaseholds to the buyers of their properties. I know which one I prefer.

I remember you pointing me towards PSN before Bouleversee, but I never got around to buying into the story as other shares looked more attractive. But now I have them (PSN) on board. Thank you.

Ian.