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Income assessments and BAE Systems' growth conundrum

Understanding the income case for companies from our Alpha screen and in the news.
Income assessments and BAE Systems' growth conundrum
  • Longer term trends and not just one-off events are important in building a picture for dividend growth
  • BAE Systems shareholders face a conundrum whether to fund growth 

Rating the income prospects of holding shares has been made very difficult in the pandemic. The Alpha dividend diamond screen has struggled to identify genuine income prospects as the raft of cuts made by companies, in response to Covid-19 lockdowns and uncertainty, has skewed many backward looking measures. 

Impact Healthcare Reit (IHR): The specialist real-estate investment trust rents properties to providers of residential care to the elderly. The pandemic has presented unique challenges to tenants, but the business model has shown signs of resilience and the long-term income case for IHR is solid.

Defence and aerospace business BAE Systems (BA.) was one of the larger companies to rank well on the Alpha dividend yield screen. While there is certainly a defensive case for holding the shares, the long-term income case is arguably compromised by the dilemma shareholders face in funding growth.

Water company owner Pennon (PNN) has announced a special dividend and other uses for the proceeds from the disposal of its waste business. The special payment will cheer shareholders, but investors must consider the long-term prospects for the ordinary dividend, too.

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