Are these 8% dividends to be snapped up, or avoided?
Totting up your dividend income can be a great way to reassure yourself that, whatever happens to the UK after Brexit, you can still look forward to long-term financial comfort. If, that is, you actually invest in dividend-paying shares.
Do yields get any better?
All investors must surely take note of an 8% dividend, and that's what's on offer from Redefine International(LSE: RDI) today.
Redefine shares fell by a couple of percent this morning, to 42.8p, after the income-focused real estate investment trust released full-year results. The dividend for the year just ended provided a 7.3% yield, and that was made possible by a 17.6% rise in earnings available for distribution, while the company's like-for-like portfolio valuation grew by 3.4%. And the share price drop is enough to boost the forecast yield for 2017 to just hit that 8% level.
Redefine has been paying cracking dividends for years, so why wouldn't people want to snap up the shares?
One worry is that such big dividends might not be sustainable, and after the shock of the referendum result, fears have grown over the profitability of the UK's property markets. And while Redefine CEO Mike Watters did say that "some uncertainty and volatility remains following the EU referendum decision", I reckon the gloom is seriously overblown.
Redefine's 2017 cash would be well enough covered by forecast earnings -- the trust aims to pay its income out to shareholders, so we don't expect to see high cover. And another factor that surely increases confidence in the sustainability of the dividend is the firm's move to introduce a scrip option. Depending on how many investors take it up, it would dilute existing shares a little, but it would reduce the need for cash a little.
More cash from property
More directly affected by the property sector slump is housebuilder Berkeley Group Holdings(LSE: BKG), whose shares have lost 28.5% since the day of the vote, similar to the rest of the sector. But forecasts have remained strong in the months since, and there's a rise in earnings per share of around 45% on the cards for the year to April 2017.
Expectations for the following year suggest flat earnings, but that still leaves the shares on P/E multiples of only a little over six. The share price fall has pushed the predicted dividend yield up to 8.2%, and if earnings come out as expected it will be almost twice covered.
In its most recent trading update on 6 September, Berkeley told us it had entered the year with record cash due on forward sales of £3.25 billion, saying it has "good visibility over the next two years". The firm repeated its guidance of £2bn in pre-tax profit over the three years to April 2018, and reiterated its strong dividend policy saying it expects "a further £10 per share to be paid evenly over the remaining 5 years to September 2021" -- and that's about as close to a guarantee of another 8% per year (on today's share price) for the next five years as we can get.
Although there was some uncertainty in the immediate aftermath of the Brexit vote, Berkeley seems confident that its business is not going to suffer unduly. The City's pundits are putting out a pretty strong buy consensus on Berkeley Group, and I can only agree.
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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended Berkeley Group Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.