Shares digital

The retail sector has been rocked by two exceptionally bearish trading statements from Land of Leather (LAN) and DSG International (DSGI), which issued its second profits warning in two months. Apart from causing concern to their own shareholders the woes of these companies have underlined the likelihood that several retailers will have to cut their dividends.

As both DSG and Kingfisher (KGF) have new chief executives they will have a strong temptation to rebase their poorly covered dividends so that they can be gradually increased. DSG has admitted that it is trading badly and Kingfisher is likely to be suffering too.

Analysts also believe that both Land of Leather and ScS Upholstery (SUY) will have to slim their payouts. Andy Wade of Seymour Pierce believes that ScS is ‘risk’ and could go under if the credit squeeze continues.

Of the other high yielders, Kesa (KESA), HMV (HMV) and Carpetright (CPR) all yield over 6% but analysts believe that all of these dividends are secure.

The market is concerned about the viability of Debenhams’ 8%+ yield, but Rhys Williams of Arbuthnot believes that the company ‘can’t afford to annoy people any more’.

Woolworths’ (WLW) 15% yield is clearly unsustainable in the medium term. Even if the dividend is maintained the market will assume that it will be cut next year and the shares will continue to disappoint.

Shares says: The attractive yield stocks are Carpetright, Kesa and HMV. Buy for yield.

by: John Marshall

The writer holds shares in Kingfisher