3 dividend stock ideas for March – Royal Dutch Shell, Schroders & Unilever

Dividend stocks

Well, what a difference a month makes.

At the start of February, the FTSE 100 was hovering around the 7,500-7,600 mark.

A month later, and the index has been back under 7,100 points.

It feels like a completely different market now.

For dividend investors, falling stock markets are not a bad thing. Lower share prices mean opportunities to pick up higher yields. And scanning through the FTSE 100 today, there are plenty of attractive yields on offer.

Here’s a look at three dividend yields that I believe look tempting right now.

Royal Dutch Shell (LON: RDSB)

Forecast yield FY2018: 5.9%
Dividend cover: 1.2x
Estimated dividend growth FY2018: 0%
Consecutive dividend increases: 0
Forward P/E: 13.8
Strengths: High yield, has not cut dividend since WWII
Risks: Another oil price collapse

Shell is not the kind of dividend stock that I usually put forward on my monthly ideas list.

That’s because I generally favour companies that have strong dividend coverage and that are growing their dividend payouts.

In Shell’s case, it has neither right now.

However, what Shell does have going for it, is its big 5.9% yield, and its impressive dividend track record, having not cut its dividend since WWII.

With the oil price in the $30s in early 2016, Shell’s dividend didn’t look sustainable for a while there.

However, the oil major weathered the storm, and with the oil price back over $60 per barrel now, the outlook looks a lot healthier.

FY2017 full-year results released in early February showed a significant improvement in earnings and cash flow, with free cash flow climbing to $27.6bn and easily covering dividend payments of $15.6bn.

Shell stated that it plans to pay another 47 cent payout for Q1 2018, indicating that we can probably expect another full-year payout of $1.88 per share.

Shell shares were trading above 2,600p in January, but have since declined to under 2,300p. At the current price, the yield looks tempting, in my view.

Schroders (non-voting) (LON: SDRC)

Forecast yield FY2018: 4.8%
Dividend cover: 2.0x
Estimated dividend growth FY2018: 0% (I’d expect this to be revised)
Consecutive dividend increases: 7
Forward P/E: 10.6
Strengths: Strong dividend growth track record, low valuation
Risks: Passive investment management threat

Another FTSE 100 company throwing out a decent dividend yield at present is investment manager Schroders.

I like the look of the company’s non-voting shares (LON: SDRC) which have a higher yield than the voting shares (LON: SDR) and currently yield 4.8%. Dividend coverage is solid at 2.0 times.

Schroders has a decent dividend growth track record, having recorded seven consecutive dividend increases now. It’s worth noting that the company did not cut its dividend during the Global Financial Crisis – an achievement for a financial services firm.

Full-year results, released on 1 March, looked good, with profit before tax rising 23% and assets under management and administration rising 13%. The full-year dividend was hiked 22%.

One risk to the investment case here is the threat of passive investment management. This shouldn’t be ignored. However, Schroders does have some very good active investment products and therefore looks well placed to prevail.

Unilever (LON: ULVR)

Forecast yield FY2018: 3.7%
Dividend cover: 1.5x
Estimated dividend growth FY2018: 10%
Consecutive dividend increases: 10+
Forward P/E: 18
Strengths: Consistent profits, emerging markets exposure
Risks: Valuation is still relatively high

Unilever is a popular stock among private investors and institutional investors alike. Its portfolio of well-known names such as Dove, Lipton and Knorr, its dependable earnings stream and its emerging markets exposure make it a highly desirable stock to own.

As such, it’s a stock that often trades at a premium valuation, and often offers little in the way of yield appeal. For example, back in October, when the shares were changing hands for 4,550p, its forward P/E ratio was 23 and its prospective yield was just 2.8%.

However, sentiment towards the stock has soured in recent months, and with the stock now trading around 3,800p, there’s definitely more value on offer.

Analysts expect a dividend payout of €1.55 for 2018, which at the current share price, equates to a yield of 3.7%. That level of yield is worth considering, in my view.

Just remember that the dividend is declared in euros, so if the pound strengthens against the euro, your dividend payout will be worth less in GBP terms.


Disclosure: Edward Sheldon, CFA owns shares in Royal Dutch Shell and Unilever. 
This article is provided for general information only and is not intended to be investment advice. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
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