Is Segro plc A Better Dividend Share Than National Grid plc, Imperial Brands PLC, BP plc And HSBC Holdings plc After Its Update?

Does Segro plc’s (LON: SGRO) update make it a more appealing dividend share than National Grid plc (LON: NG), Imperial Brands PLC (LON: IMB), BP plc (LON: BP) and HSBC Holdings plc (LON: HSBA)?

Segro plc
Segro plc

Segro plc (LON: SGRO) (LSE: SGRO.L) has released a trading update for the period since 30 June 2016. It states that although it is too early to measure the full impact of the EU referendum, Segro has not felt a material impact on its business since 23 June. Its vacancy rate is still low and there has been a further net absorption of existing space.

Further, in the period since 30 June Segro has signed unconditional pre-let agreements for 188,600 square meters of space across the UK and Europe and this is expected to generate £6 million of new annualised headline rent. Segro believes that the pipeline of near-term opportunities is still encouraging.

Segro’s vacancy rate has remained stable since 30 June at 4.8%. This is reflective of the completion of speculative space not yet let during the period, offset by the £1.7 million net absorption of existing space and lettings of newly completed speculative developments. Further, Segro has contracted £9.9 million of new rent since 30 June. This includes £2.8 million of existing space.

As at 25 August 2016, Segro has 629,108 square metres of space under development. This equals a potential future annualised rent of £32.2 million. Of this figure, 76% is either let or pre-let and these projects should generate a yield on total development cost of 7.9%.

Segro is forecast to pay dividends per share of 16.2p this financial year. This equals a prospective yield of 3.7%. Although appealing, this is lower than the yields on offer from the likes of BP plc (LON: BP), National Grid plc (LON: NG), Imperial Brands PLC (LON: IMB) and HSBC Holdings plc (LON: HSBA).

BP yields 6.9% but its dividend is only forecast to be covered 1.1 times by profit next year. Similarly, HSBC yields 6.9% but its dividend is forecast to fall in 2017 so that it has a prospective yield of 6.5%. However, due to their cost-cutting strategies and long term growth potential, in my view both stocks offer better dividend prospects than Segro. National Grid and Imperial Brands yield 4.1% and 3.9% respectively. Their dividends are covered 1.5 and 1.6 times respectively versus 1.2 times for Segro.

Although Segro has appeal as a dividend share, in my view the likes of BP, HSBC, National Grid and Imperial Brands offer better yields and better long term dividend growth potential.

The author owns shares of National Grid, Imperial Brands, HSBC, but not BP or Segro at the time of writing.

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