Wake up early on Tuesday – BP's divi decision could be the death knell for income investors
July has been the second bad month in a row for investors with the FTSE 100 index trading at lows not seen since late-May. But there were some significant winners last week for the Telegraph’s Fantasy Fund Managers.
Pets at Home saw a share price increase of around 25pc and insurer Hastings Group gained by over 20pc. With so many working from home and fewer people needing a convenient lunch near the office, Greggs struggled to gain traction and was the worst performer along with car dealership Inchcape.
This week we will get second-quarter results from BP and first-half results from SEGRO.
Tuesday August 4: BP, second-quarter results
New BP boss Bernard Looney, who took over in February, is already looking to reposition the business and ensure it is a so-called net zero company by 2050. He is planning a big strategy presentation on this in the autumn on how BP will not actively contribute to increasing carbon emissions.
Investors should look for comments about it in it results, not least because they are going to be ugly. Back in June, when BP cut its long-term oil and gas price assumption, Mr Looney warned it would write off between $13bn and $17.5bn of production equipment and oil field exploration assets last quarter.
The firm is likely to record a loss at the net level, or the bottom line, for the third time in four quarters. Shell cut its dividend by two-thirds in the first three months of 2020 but BP held firm at 10.5 cents per share.
If BP sticks to that for the whole year it would be the single biggest dividend payer in the FTSE 100, at around £6.7 billion.
That number leaves BP’s shares on a forward dividend yield of more than 10pc, which some argue may be in “too good to be true” territory.
Wednesday August 5: SEGRO, first-half results
Slough Estates has come a long way since its name change to SEGRO in 2007. The real estate investment trust has long been seen as a winner thanks to its focus on warehousing and logistics and thanks to judicious asset disposals and acquisitions.
The company’s six biggest customers by rental income are Deutsche Post, Amazon, Fedex, Royal Mail, Worldwide Flight Services and British Airways.
SEGRO’s shares currently trade at a healthy premium to their last stated net asset value per share figure of 708p, in marked contrast to fellow FTSE 100 Reit British Land and Land Securities, which trade at share price discounts of 50pc or more. This is down to exposure to retail, the City and major new London developments at a time of great economic uncertainty.
Investors should look at rental income. In its June trading update, SEGRO flagged strong new rental income with £21m of new lettings. But management did acknowledge that £15m in rent had been deferred or reprofiled leaving it 18pc down on its rental income by the end of May.
None of those customers had asked to vacate their space but investors should also watch the vacancy rate, which was 5.6pc at the end of May. That did represent an increase from 4pc in December, although 1.1 percentage points of that came because it had completed a new development and not yet started receiving rents.
SEGRO plans to further embellish its dividend record and stick to its planned 85pc to 95pc pay-out ratio. As a result, it should pay a first-half dividend of 6.9p per share, compared with 6.3p a share at the same stage in 2019.
Other news items to watch
Monday August 3: First-half results from HSBC and Hiscox
Tuesday August 4: Full-year results from Diageo, first-half results from Spectris, Direct Line and Centamin
Wednesday August 5: First-half results from Legal & General, Coca-Cola Hellenic Bottling, William Hill and Metro Bank
Thursday August 6: First-half results from ITV, Glencore, Aviva, Mondi, Phoenix Group and Serco, Bank of England decision on interest rates
Friday August 7: First-half results from Hikma Pharmaceuticals and Standard Life Aberdeen
