Shares digital

Dividends across the retail sector are being slashed or axed altogether as the squeeze on consumer spending tightens. Within the past week or so DIY chain Kingfisher (KGF) halved its final payout, while furniture retailers ScS Upholstery (SUY) and Land of Leather (LAN) were both forced to axe first half dividends.

This has led analysts to survey the retail scene for signs of more potential dividend victims, with City eyes landing on long-term beleaguered high street chain Woolworths (WLW) in particular.

Analysts are united in believing that Woolworths will slash its dividend, with analysts at Landsbanki forecasting a total payment of 1p compared with last year’s offering of 1.8p. Similarly Nick Bubb of Pali International believes that DSG International (DSGI) will halve its total dividend to 4p when it reports in June. With both of these stocks the market will now concentrate upon their fundamental problems instead of being seduced by an unsustainable yield. In both cases the immediate prospects are dire.

Woolworths is suffering poor trading in its stores which are regarded as ‘largely tired’. Their long-term future is uncertain and their appeal to a predator is limited.

Meanwhile Nick Bubb has a price target of 53p for DSG, which is 21% below its current 67.5p level. The company is suffering from structural problems as well as the impact of the credit crunch. Bubb believes the group’s Italian losses will grow to £22 million this year and then to £30 million, with PC World also struggling in the UK.

Those who seek yields in the sector would do better to look at Carpetright (CPR) yielding 6.6% and HMV yielding 5.7% where the dividends seem more sustainable.

Shares says: The outlook for shareholders in both DSG International and Woolworths is poor. Avoid. The income hungry should seek other lower but more sustainable yields.

AVOID

by: John Marshall