In 2009, total dividends paid by UK companies fell 13.4 per cent from the year before, according to Capita Registrars. And there have been some mighty names among the roll call of choppers over the last two years. Marks and Spencer, Legal & General, DSG, HSBC (for the second year in a row) and Brixton Estates, the latter breaking its 40-year record of dividend growth. Many other former big hitters, such as Lloyds TSB and Royal Bank of Scotland, have yet to reinstate payments. This year, BP – responsible for a seventh of all the dividend income in the FTSE 100 – will stop paying dividends, too.
This year has already seen 102 companies reinstate payments, Capita notes, but this has done nothing to stop the tendency for more and more of the income to come from fewer and fewer names, including Aviva, AstraZeneca, BT and Vodafone.
To go beyond these well known names, in search of higher payments but equal security means some research work. In the table below we've listed 10 dividend payers that may be worth a closer look.
While companies like National Grid are reasonably familiar, small fry such as Alumasc may not be. It has been a consistent dividend payer and this year is keeping an uncovered payout despite a temporary drop in earnings. Insurers like broker Catlin and run-off specialist Chesnara do not have meaningful current ratios, but are well able to afford their dividends as the coverage ratios show. Likewise, Provident Financial's ratio may be a shock, but it reflects the fact that it is involved in unsecured lending. HMV can easily afford its hefty dividend for now, but investors must be aware that as a largely physical retailer in an increasingly online world its business model is under pressure. As can be seen from the table, very few shares with the highest yields cruise through all the checks we need to make.
Safe dividend payers*
| Company Name | TIDM | Share Price | Historic Yield | Dividend (P) | Dividend Cover | Net Debt/ Equity (%) | Interest Cover | Current Ratio | Market Cap |
|---|---|---|---|---|---|---|---|---|---|
| Alumasc | ALU | 101 | 10% | 10 | n/a | 57.6 | 1.5 | 1.85 | £36.4m |
| Catlin | CGL | 329 | 7.72% | 25 | 1.7 | 50.5 | 6.4 | n/a | £1.18bn |
| Chesnara | CSN | 228 | 8% | 16 | 2.88 | 89.2 | 86.2 | 1.61 | £232m |
| Greene King | GNK | 413 | 5.21% | 21.5 | 2.4 | 74.5 | 1.3 | 0.73 | £891m |
| HMV | HMV | 60 | 12.4% | 7.4 | 1.5 | 81.6 | 2.9 | 0.65 | £252m |
| Interserve | IRV | 194 | 8.18% | 18 | 3 | 70.9 | 4 | 0.83 | £245m |
| Morgan Sindall | MGNS | 598 | 7.02% | 42 | 1.8 | 63.3 | 4 | 0.91 | £258m |
| National Grid | NG. | 549 | 7.01% | 37 | 1.5 | 88 | 1.7 | 77 | £19.2bn |
| Provident Financial | PFG | 829 | 7.70% | 63.8 | 1.2 | 77.4 | 3.4 | 6.15 | £1.12bn |
| Rok | ROK | 19.5 | 11.5% | 2 | 2 | 71 | 1.8 | 1.03 | £33.6m |
| * Prices and ratios as of 1 Sep 2010 | |||||||||
