Are Vodafone Group plc, Investec plc and G4S plc about to halve their dividends?
In recent years, the financial performance of Vodafone(LSE: VOD) has been hugely disappointing. That's largely because the growth rate of the European economy has been relatively low, with it arguably never having fully recovered from the credit crunch. And while Vodafone's large exposure to Europe is due to its own strategy, thus far it has proven to be the wrong one since its bottom line has fallen heavily in the last few years.
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However, Vodafone's fortunes could be about to change and this is great news for its dividend. For example, in the next two financial years Vodafone's bottom line is forecast to rise by around 57% and this could cause its dividends to begin rising at a much faster pace than they've done in the last few years. Furthermore, it means that the chances of a dividend cut are far less likely since Vodafone may be able to afford to be more generous when it comes to shareholder payouts. And with its shares trading on a price-to-earnings-growth (PEG) ratio of just 1, they seem to offer excellent capital growth potential, too.
Under pressure
While Vodafone has endured a tough period, investors have become concerned about the outlook for South Africa-focused Investec(LSE: INVP). While the financial services company has a bright long-term future, the South African economy is enduring a challenging period, at least partly due to the weakness in the global resources sector. As such, there are concerns that Investec's profitability and dividends could come under a degree of pressure.
However, with Investec forecast to increase its bottom line by 10% in the current year and by a further 11% next year, its performance looks set to remain strong following three consecutive years of bottom-line growth. And with its dividends being covered 1.9 times by profit, there seems to be more scope for a rise in dividends rather than a cut. Moreover, with Investec trading on a PEG ratio of just 0.9, capital gains could lie ahead over the medium term.
Sound income play
Meanwhile, G4S(LSE: GFS) continues to make an impressive recovery after a hugely challenging period. After having posted four consecutive years of falling profitability, the support services company last year recorded a rise in its bottom line of 14%. And looking ahead to the next two years, earnings growth of 3% and 8%, respectively, is being pencilled-in by the market.
Despite its falling profitability, G4S continued to raise dividends in recent years. This has caused its dividend coverage ratio to narrow somewhat, but with it now standing at 1.6 it seems to be very healthy. This means that there's scope for further rises in dividends over the medium term and with G4S currently yielding 5.2%, it appears to be a sound income play for the long term.
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Peter Stephens owns shares of Vodafone. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
