23 May 2019 | SHARES | 23DIRECT LINE
9.1% YIELDADD CHARTInsurer Direct Line (DLG) is yielding 9.1%, generous
because it also assumes it pays a special dividend.
As it stands the payout is barely covered by
ĞĂƌŶŝŶŐƐĂŶĚŝƐƵŶĐŽǀĞƌĞĚďLJĐĂƐŚŇŽǁ͕ƐŽŝŶƚŚĞ
event that the business takes a hit from higher
ĐůĂŝŵƐ͕ŚŝŐŚĞƌĐŽƐƚƐŽƌƌĞŐƵůĂƚŽƌLJŝŶƚĞƌǀĞŶƟŽŶƚŚĞ
ĮƌƐƚƚŚŝŶŐƚŽďĞĐƵƚǁŝůůďĞƚŚĞĚŝǀŝĚĞŶĚ͘
LJǁĂLJŽĨŝůůƵƐƚƌĂƟŽŶ͕ůĂƐƚLJĞĂƌƚŚĞ͚ĞĂƐƚĨƌŽŵ
the East’ pushed up property claims sharply,
ůĞĂĚŝŶŐƚŽĂĚƌŽƉŝŶŽƉĞƌĂƟŶŐƉƌŽĮƚƐĂŶĚůĞĂǀŝŶŐ
ƚŚĞϮϬϭΘĚŝǀŝĚĞŶĚŽĨϮε͘ϯƉƐŝŐŶŝĮĐĂŶƚůLJĚŽǁŶŽŶ
2017’s payout of 35.4p, due to a less generous
special dividend.
It has no debt, the pension scheme is £17m in
surplus and at the end of last year it had £236m
ŽĨƐŚŽƌƚͲƚĞƌŵĚĞƉŽƐŝƚƐ͕ƉůƵƐŝŶƚŚĞůĂƐƚƚǁŽLJĞĂƌƐŝƚ
has released £840m of reserves set aside for claims
ƐŽƚŚĞƌĞŝƐƐĐŽƉĞƚŽƐƟĐŬƚŽƚŚĞĚŝǀŝĚĞŶĚĨŽƌĞĐĂƐƚ͘
,ŽǁĞǀĞƌĨŽƌŽƵƌŵŽŶĞLJƚŚĞƌĞĂƌĞƐĂĨĞƌ&d^
dividends out there.
^^
7.8% YIELDADD CHARTThe second stock to avoid is SSE (SSE)ǁŚĞƌĞƚŚĞ
company has announced plans to cut its dividend
ĨƌŽŵƚŚĞĐƵƌƌĞŶƚĮŶĂŶĐŝĂůLJĞĂƌŽŶǁĂƌĚƐ͘
dŚĞƵƟůŝƚLJĮƌŵĂŶŶŽƵŶĐĞĚƉůĂŶƐƚŽƉĂLJεϳ͘ρƉ
ƉĞƌƐŚĂƌĞĨŽƌƚŚĞĮŶĂŶĐŝĂůLJĞĂƌĞŶĚĞĚϯϭDĂƌĐŚ
ϮϬϭε͘,ŽǁĞǀĞƌ͕ŝƚƐĂLJƐƚŚĞƉĂLJŽƵƚǁŝůůƚŚĞŶĚƌŽƉƚŽ
ΘϬƉĨŽƌƚŚĞŶĞǁĮŶĂŶĐŝĂůLJĞĂƌ͘
ƐŝƐƚLJƉŝĐĂůĨŽƌĂƵƟůŝƚLJŝƚŚĂƐĂůĂƌŐĞĂŵŽƵŶƚŽĨ
ĚĞďƚƐŽŝŶƚĞƌĞƐƚĐŽƐƚƐĞĂƚƵƉĂďŝŐĐŚƵŶŬŽĨƉƌŽĮƚƐ
before dividends can be paid. The results for the
LJĞĂƌƚŽϯϭDĂƌĐŚŚĂǀĞũƵƐƚďĞĞŶƌĞůĞĂƐĞĚĂŶĚŶĞƚ
ĮŶĂŶĐĞĐŽƐƚƐĂŵŽƵŶƚƚŽŽǀĞƌϯρйŽĨŽƉĞƌĂƟŶŐ
ƉƌŽĮƚĂŐĂŝŶƐƚůĞƐƐƚŚĂŶϯϬйƚŚĞƉƌĞǀŝŽƵƐLJĞĂƌ͘
With net debt expected to increase from £9.4bn to
άϭϬďŶƚŚŝƐLJĞĂƌ͕ĮŶĂŶĐĞĐŽƐƚƐǁŝůůďĞĞǀĞŶŚŝŐŚĞƌ͘
The group’s pension schemes are in surplus by
άϮΘϳŵĂŶĚƚŚĞĮƌŵŚĂƐάκϯϮŵŽĨĐĂƐŚŽŶƚŚĞ
balance sheet but the energy price cap and a tough
ĐŽŵƉĞƟƟǀĞŵĂƌŬĞƚĂƌĞĞdžƉĞĐƚĞĚƚŽŬĞĞƉƌĞǀĞŶƵĞƐ
ĂŶĚŽƉĞƌĂƟŶŐƉƌŽĮƚƐƵŶĚĞƌƉƌĞƐƐƵƌĞ͘
dŚĂƚŐŝǀĞƐ^^ ǀĞƌLJůŝƩůĞƌŽŽŵƚŽŵĂŶŽĞƵǀƌĞ͕
ĂŶĚƚŚĞĮŶĂůŶĂŝůĨŽƌƵƐŝƐƚŚĞƐƉĞĐƚƌĞŽĨĂ>ĂďŽƵƌͲ
ůĞĚŐŽǀĞƌŶŵĞŶƚƐĞƚŽŶŶĂƟŽŶĂůŝƐŝŶŐƚŚĞĞŶĞƌŐLJ
ĚŝƐƚƌŝďƵƟŽŶƐĞĐƚŽƌĂƚƚŚĞĞdžƉĞŶƐĞŽĨƐŚĂƌĞŚŽůĚĞƌƐ͘TWO HIGH-YIELDING STOCKS TO AVOID
320350380
DIRECT LINE INSURANCE2018 20191000115013001450
SSE2018 2019