The Motley Fool Previous Page


The 15 Biggest Dividends in the FTSE 350

http://www.fool.com/investing/international/2012/10/05/the-15-biggest-dividends-in-the-ftse-350.aspx

David O'Hara
October 5, 2012

LONDON -- The FTSE 350 is the aggregate index of the FTSE 100 and FTSE 250. This collection of the U.K.'s 350 largest listed companies contains a broad collection of investment opportunities.

The FTSE 100 is the home of older, established blue chips. In the FTSE 250, you will find some newer, fast-growing companies. The mid-cap index is also home to some former FTSE 100 stars. FTSE 250 companies are less well researched than their blue-chip counterparts. For this reason, an investor is more likely to find a pricing anomaly among the 250 than the top 100.

I trawled the FTSE 350 to find the 15 shares with the highest historical yield. Remember that a company's dividend is not fixed; a dividend can always be cut (or increased) at a later date.

Company

Price (in pence)

Yield (historic, %)

P/E (forecast)

Market cap (in millions of pounds)

Cable & Wireless Communications 36 13.8 9.3 910
Firstgroup 194 12.2 6.3 932
Man Group (LSE: EMG.L  ) 86 12.0 16.3 1,559
Resolution 220 9.4 9.2 3,055
Phoenix Group (LSE: PHNX.L  ) 503 8.4 3.9 878
Halfords 266 8.3 10.8 531
RSA Insurance (LSE: RSA.L  ) 112 8.2 9.4 3,985
Aviva 326 8.0 6.7 9,505
UK Commercial Property Trust 66 7.9 N/A* 793
EVRAZ 248 7.0 13.9 3,319
ICAP (LSE: IAP.L  ) 333 6.6 9.3 2,149
SEGRO 224 6.6 12.7 1,663
Henderson 111 6.4 9.5 1,236
Intermediate Capital 305 6.2 9.6 1,225
Carillion 276 6.2 6.6 1,189

Data from Stockopedia. *No forecast available.

Four of these looked particularly interesting.

1. Man Group
Man Group is a provider of hedge funds. In recent years, the company has suffered a dramatic fall from grace. Five years ago, shares in Man Group traded at 653 pence. Today, they can be bought for around just 86 pence.

Man Group stands out for its huge dividend yield. Based on last year's payout, Man shares come with a 12% yield. The problem is that this dividend was not covered by earnings. This means that unless profits improve, the dividend cannot be sustained.

Furthermore, the huge dividend yield suggests that few investors believe that the payout will survive. As the old adage goes: "If something looks too good to be true, then it probably is." Value and contrarian investors are often willing to overrule the consensus. However, in this case, I think that the investment community's reluctance to back the company is telling. Man operates in and around professional investors. I have my own adage: "the City knows its own."

2. ICAP
Like Man, ICAP is a City company. ICAP operates in a somewhat obscure financial niche as an inter-dealer broker. The company helps buyers and sellers of financial contracts execute transactions by acting as a middleman. Financial institutions need a go-between like ICAP. Without an inter-dealer broker, it would be more difficult to trade at an attractive price.

The company has been an enormous success. Formed from the merger of two firms in 1999, ICAP grew to be a FTSE 100 company. Although recent price movements have seen the company drop down to the FTSE 250, there are no signs that ICAP is in any serious decline.

In fact, for the next two years, ICAP is expected to continue its growth. ICAP is forecast to grow both its earnings and dividend for 2013 and 2014. Consensus is for earnings per share to hit 38.5 pence for 2014 and the dividend to reach 23 pence. On today's prices, this equates to a price-to-earningsĀ ratio of 8.6 and yield of 6.9%.

3. RSA Insurance
Insurer RSA is a company that I have been looking at ahead of the IPO of its competitor, Direct Line. With a market capitalization of 4 billion pounds, RSA is much larger than its newcomer rival.

With a heritage stretching back 300 years, RSA today employs 23,000 people and serves 17 million customers.

In the U.K., RSA operates More Th>n; a leading car, pet, travel and home insurance brand. RSA uses the cash flow from its insurance operations to pay a large shareholder dividend. Th