Macrovue’s Head of Investment Committee Clay Carter takes a look at five global companies offering high and sustainable dividends.
CenturyLink (NYSE: CTL)
CenturyLink has stated that it is planning a period of cost and digital transformation in 2019 to position itself for sustainable growth in free cash flow beyond the benefit of cost savings from the Level 3 deal. The company expects to realise $850 million in run-rate adjusted EBITDA merger synergies from the Level 3 deal by year-end and remains on track to reach a 2018 adjusted EBITDA target of $9-$9.15 billion, up 4.5% vs. 2017.
This, together with below-target capital spending, led CenturyLink to raise its 2018 guidance on free cash flow by $400 million to $4-$4.2 billion. While CenturyLink's revenue remains under pressure from a decline in its “legacy” services - broadband subscriber losses and the elimination of unprofitable contracts - it is focused on gaining share in the enterprise business to revive revenue growth.
CenturyLink’s dividend yield is currently 7.7%, (post its 13 February 2019 announcement).
Zurich Insurance (SWX: ZURN)
Zurich Insurance held an investor day on 5 December 2018. Zurich made it clear that its very strong balance sheet together with earnings growth supports further shareholders’ value creation. This could be an indication of more buybacks in future, in addition to the US$1bn completed in FY18.
A planned rebalancing of Zurich’s business mix should support future earnings growth. While estimates are in line for 2018 and 2019, earnings growth is likely to be stronger after 2019, when the rebalancing measures taken become fully effective. The market is also forecasting the dividend growing at CHF1 pa, from CHF18.
In terms of cost cutting, Zurich confirmed US$1.1bn at end 2018 and US$1.5bn at end 2019, up from US$900m at 1H18. This is in line with its targets and with previous guidance. Zurich also confirmed its previously published Zurich Economic Capital (Z-ECM) ratio of 134%, which is well above the 100-120% target range.
Zurich’s dividend yield is currently 5.66%.
Vodafone (LON: VOD)
Vodafone is undertaking a targeted >€1.2bn in operational expenditure reductions over the next 3 years which should mitigate revenue pressures. As well, a reduction in content costs can support a return to EBITDA growth. Cost cutting alone should enable Vodafone to deliver on its 3-year LTIP ambition of €17bn in cumulative equity free cash flow (EFCF). Any revenue growth benefits would be incremental. We remain positive on the shares going forward.
Vodafone’s dividend yield is currently 9.54%.
Deutsche PBB (ETR: PBB)
Deutsche Pfandbriefbank has a high-quality loan portfolio comprised of two major business segments, namely commercial real estate and public sector finance, with both activities being heavily skewed to core European markets. The high quality of the loan book is highlighted by a low level of problem loans which has been trending down to 0.4% as at June’18. The average loan to value of the Real Estate Finance book has remained stable at 55%.
Much of the recent share price decline is more due to weak equity markets than for any fundamental reason and we’re confident the dividend remains secure.
Deutsche PBB’s dividend yield is currently 11.02%.
Carlyle Group (NASDAQ: CG)
As an asset manager, Carlyle Group was also punished in the Q4 2018 market correction but has recovered most of its underperformance (and then some) in the first few weeks of 2019, rallying some 23% off its December lows. Analysts now expect Carlyle to exceed its $100bn fundraising target. Carlyle has already raised $83bn towards its $100bn target for 2019. Management is confident it can fundraise in excess of $30bn this year.
The European buyout fund closed and it activated its fees on 1 October 2018. The company also noted that its most recent vintage of funds were 30%-40% higher than the previous vintage. So, net-net we believe the distributions are secure.
Carlyle Group’s dividend yield is currently 6.59%.
You can invest in these companies directly through Macrovue’s International High Dividend Vue.
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Past performance is not a reliable indicator of future performance.