As with 2015, dividends will be an important driver to the performance of stock markets in 2016. Interestingly the top 200 UK quoted PLCs are estimated to pay out around £87bn in 2016, which is back to the record highs of 2007. The Lehman inspired credit crunch saw this figure cut to around £58bn as the banks cut dividends in 2009 and 2010.
Today the casualties will be the commodity stocks, be it BP having to deal with $30 oil (the third highest dividend payer) or the miners that have little earnings visibility. ROYAL DUTCH SHELL is currently the biggest dividend payer in the market but post its BG merger they might have to reassess this as the original deal rationale was based on a $70 oil price. LLOYDS is the market’s ninth largest prospective dividend payer and we hope dividend clarity will be given on 25 February with their final results.
We anticipate a progressive increase in shareholder returns via dividend payments and possibly buybacks at LLOYDS, all on the back of the bank’s much improved capital position.
We believe that this, along with solid contributions from the non-financial sector companies such as BAE, BT and EASYJET, will go much of the way towards offsetting dividend shortfalls caused by drops in payouts from mining and commodity stocks. That said, market dividend cover is becoming stretched after three years of rocketing pay outs. Finding yield is not hard but safe yield with growth is. As a theme, the explosion of “click and collect” internet retailing in the UK (16% of total retailing versus 6% in America) is of interest to us. LONDONMETRIC, with a 4.5% yield, has 60% of its property assets in internet fulfilment distribution sheds for companies like DIXONS, B&M and PRIMARK and these are rare assets. TRITAX, an industrial warehouse owner in the online retail market for example, which yields 5%, specialises in mega warehouse internet distribution. CLIPPER LOGISTICS is another interesting situation, being an internet click and collect fulfilment expert that has John Lewis as a growing customer.
All are exposed to the theme of internet retailing thus providing a combination of income and growth. The UK market’s elephant in the room is an early EU exit vote, now scheduled for 23 June this year. Market yield will offer a prop for stocks in 2016 but capital gains would be good to have as well. PHP did well for us in 2015, we will look to find similar winners in 2016.