Investors struggling with a mixed dividend outlook in the UK may be able to benefit from Evenlode’s sustainable dividend report, which details 10 market-leading companies with sustainable dividends.
Tough trading conditions, capital investment requirements, poor cash generation and high debt, as well as volatility from the EU referendum vote, have contributed to the sharpened income axe.
But according to Evenlode's analysis, there are a plenty of companies throwing off plenty free cash flow to fund current and future business investment, and maintain hefty dividend payments.
Evenlode's Top 10
⇒ Enterprise software firm Sage (SGE) is one for investors to watch as accountancy software revenue comprises nearly 75% of sales. Dividends have been paid over the last 15 years and Sage coverts much of its profit into cashflow, resulting in a strong balance sheet. With a market cap of £7.1 billion, based on a 712p share price, the dividend yield is 2.5%.
⇒ Food services provider Compass (CPG) is an attractive option as dividends have grown every year since 2001, at an average rate of 10% per annum over the last five years.
The company’s resilient business model is supported by long-term contracts with high renewal rates, and at £14.33, offers a 2.5% yield.
⇒ Precision instruments developer Spectris (SXS) has consistently turned profit into cash and boasts a strong balance sheet and dividend yield of 2.9%. A market valuation of £2.2 billion implies an £18.84 share price. The firm has recently increased its dividend by 8%.
⇒ Payment technology firm PayPoint (PAY), trading at 989.5p, offers a dividend yield of 4.9% and is able to sustain this through limited capital requirement and strong free cash flow. It appeals to investors as it returns excess cash to shareholders and recently announced special dividend payments over the next five years.
⇒ Small cap patent translator RWS (RWS) offers a 2.5% dividend yield, based on the current 254.75p share price, and has boosted its dividend every year since its flotation in 2003. The company has achieved this through an asset-light and highly cash generative business combined with a strong balance sheet.
⇒ Asset-light recruitment business Page Group (PAGE) has promising growth potential in the outsourced recruitment market, reflected in the 338.6p stock price. It is driven by organic growth, is low-capital intensive and generates strong cash, enabling further market share in volatile conditions, while paying healthy dividends with a yield of 4. 3%.
⇒ Magnum ice-cream-owner Unilever’s (ULVR) low-ticket, repeat-purchase business model has driven dividend growth by 10% every year over the last 10, lending the group gold-plated reputation. Diverse global brands and reinvestment will help strengthen its competitive position and improve long-term growth. The company’s dividend is currently 3% based on its £35.445 shares.
⇒ Software provider Fidessa (FDSA) has good long-term growth potential, but its sector has been difficult over the last two years as its customer base faces headwinds and slower spending.
The company operates a prudent balance sheet with no debt and a strong net cash position, while free cash flow is regularly returned through dividends. Its current dividend yield is 3.7% at £25.57.
⇒ High performance polymer developer Victrex (VCT) boasts a strong cash flow and no debt. Investors will be pleased with its policy to pay special dividends when cash builds up above a certain level and its yield of 3.9%.
⇒ Mid cap engineer Spirax-Sarco (SPX) earns the majority of its revenue from the sale of spare parts and maintenance, which provides a resilient cash flow stream. At £39.48, the yield stands at 2%.