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Dogs of the Footsie 2017: 10 shares yielding over 5%
This year's Dogs of the Footsie portfolio is more diverse than usual: while past portfolios have been dominated by utilities or financials or commodities, depending on the economic cycle, this one spans a wide range of sectors.
As well as two oil companies - BP (BP.) and Royal Dutch Shell (RDSB), both regulars in the portfolio - it also includes a retailer, an insurer, a housebuilder and a service company, plus a couple of utilities in SSE (SSE) and Vodafone (VOD).
Royal Dutch Shell
The oil giant is a regular on the list, as its long history of dividend increases confounds the sceptics who question whether the payout is sustainable.
Dividend cover is tight, with the payout expected to be roughly equal to its earnings in the current year.
But recent oil price strength, combined with the company's recognition that income is a key attraction for investors, means the doubters should be wrong again.
This is the biggest dividend payer in the world - but is a cut on the cards?
BP has been rebuilding its dividend following the cut made in the wake of the Gulf of Mexico oil spill and, like Royal Dutch Shell, its cover is fairly low.
Both companies declare their dividends in dollars, so last year's Dogs portfolio benefited from the post-Brexit depreciation of sterling. That meant that the sterling value of BP's payments rose more than 10% last year, although in dollar terms the payment was held steady.
Capita (CPI) had a difficult 2016, with its shares halving following a serious of profits warnings.
That culminated in the announcement in December that it would sell its Capita Asset Services division, but it also confirmed that it "expects to maintain the dividend in 2017, rebuild dividend cover in the medium term and return to steady dividend growth more reflective of the organic growth of the Company thereafter".
Fund management guru Neil Woodford has been adding to his holding, claiming its attractions are not appreciated by the market.
Neil Woodford: why my performance in 2016 was disappointing
The banking group is another of the FTSE 100 (UKX) companies declaring dividends in dollars, so its investors have also benefited from a rising income despite static payments.
Like other global banks, HSBC's (HSBA) profits are still labouring under the pressure of increased regulation, fines for past wrongdoing, increased capital requirements and a sluggish global economy.
A Dogs stalwart, SSE delighted investors with its third-quarter trading update when it said it "still expects to report an annual increase in the full-year dividend that at least keeps pace with RPI inflation, with annual increases that at least keep pace with RPI inflation also being targeted for the subsequent years".
Some analysts had expected a cut, or at least an easing of its pledge to keep increasing payments in line with inflation, but the utility company said it expects to return to profits growth and to continue with its capital investment programme.
Even by the standards of other Dog companies, Vodafone's dividend cover is thin - dividends have outstripped earnings for the last three years and analysts' forecasts say this will continue for the next three at least.
Its cash flow remains strong, however, underpinning its generous dividend payment. It has just proposed a merger with an Indian rival in a bid to deal with competition from the market leader there.
Housebuilder Persimmon (PSN) is working through a programme of returning 900p per share to investors over the five years to June 2021.
So far it has returned 350p, and the remaining 550p is expected to be paid in five further equal instalments, with the next payment due to be finalised at the end of February and paid in June.
While the vote for Brexit has meant the housing market has slowed, particularly in London, the company remains confident that it can keep to this payment schedule.
Legal & General
Insurance company Legal & General's (LGEN) shares fell sharply in the immediate aftermath of the Brexit vote, but then recovered strongly.
Chief executive Nigel Wilson said in his interim statement that while there was still considerable uncertainty about markets and politics, the company remained confident of its own ability to deliver attractive returns. Analysts predict it will continue to grow its dividend.
Marks & Spencer
The once iconic British retailer has struggled in recent years, as "fast fashion" from companies such as Zara and H&M and the growth in online retailing have hit demand for its clothing range, though this has been partly offset by growth in its food offering.
Marks & Spencer's (MKS) Christmas trading update suggested that it could be turning the corner. One thing that has been consistent is its commitment to the dividend.
Royal Mail's (RMG) shares had a spectacular run after its privatisation but have lost a little of their lustre amid growing competition and cost pressure in core markets, although they remain above the listing price.
The dividend remains a key attraction for investors, with analysts forecasting healthy growth and dividend cover of more than 1.5 times earnings - among the highest in the Dogs portfolio.
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. 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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