What: Woolworths Limited (ASX: WOW) shares could come under further selling pressure today after a report in Fairfax Media that, "analysts believe the Woolworths board may cut dividends by at least 30% and reduce its payout ratio from 70% to about 50% to preserve cash, strengthen its balance sheet and avoid another downgrade to its credit rating after losing its long-term A rating in August."
So What: With the share price closing yesterday at $23.90 the stock continues to trade near its 52-week low. Based on the dividend paid in financial year 2015 of 139 cents per share (cps), the stock is currently trading on a trailing fully franked yield of 5.8%.
Meanwhile, based on consensus estimates from Thomson Research, Woolworths is expected to pay dividends in the current 2016 financial year totalling 113 cps, 18% lower than last financial year and making the forecast yield a more subdued 4.7%. (Either those estimates are too optimistic or analysts have yet to update their forecasts, so the yield could actually be lower -Ed).
Now What: Investors who own shares in Woolworths for the reliable income stream they have historically provided will no doubt be concerned by the latest views of analysts.
While the yield offered may still be appealing compared with a deposit account, conservative investors who are reliant on dividend income may choose to switch to other blue-chip stocks not facing the kind of business pressures Woolworths is enduring.
The dividend of perennial income favourite Telstra Corporation Ltd (ASX: TLS) would appear to remain a sound option with consensus estimates forecasting a 1 cps increase to 31.5 cps this financial year. With Telstra's stock also near a 52-week low at $5.40, this implies a fully franked yield of 5.8%.
Likewise, the major banks continue to remain attractive yield plays. Commonwealth Bank of Australia (ASX: CBA) for example is forecast to increase its dividend to 426 cps this year, implying a fully franked yield of 5.6%.
