- Consensus dividend forecasts have plateaued since half-year results
- High yields point to intense market pessimism rather than signs of impending cuts
As a rule of thumb, double-digit dividend yields tend to imply that a cut is on the way. If a company’s market valuation is less than 10 times the amount of cash it handed out to shareholders over the past year, it’s normally a signal that investors believe capital preservation should now be prioritised over capital distribution.
This year, the severe dislocation in share prices and income expectations has left a handful of anomalies. Within the FTSE 100, Legal & General (LGEN) and M&G (MNG) stand out for their recent commitments to maintain – and even increase – payouts at levels which would normally appear unsustainable. Having both sold off by more than a third this year, the asset manager-cum-life insurers sit on forecast dividend yields of 9.6 and 12.3 per cent for this year, respectively. Next year, analysts expect dividends to hit increase further, to 18.8p and 18.3p per share. Against their current share prices, that would put L&G on a yield of 10.2 per cent and M&G on 12.5 per cent, levels normally associated with ex-growth sectors like tobacco.