4 Top Dividend Growth Stocks: Prudential plc, Aviva plc, Old Mutual plc & Marks and Spencer Group Plc

With dividend growth slowing in the FTSE 100, dividend growth investors should take a look at Prudential plc (LON:PRU), Aviva plc (LON:AV), Old Mutual plc (LON:OML) & Marks and Spencer Group Plc (LON:MKS).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Since the start of the year, nine FTSE 100 companies have already announced cuts to their dividend payouts. Growth in dividends from the FTSE 100 is now at its slowest pace for many years, leading many income investors to search for yield in foreign and small-/mid-cap stocks. However, dividend investors should not avoid Footsie stocks completely, as there are still quite a few sustainable dividend-growth stocks and many offer attractive valuations, too. Here are my top 4…

Prudential

Life insurer Prudential (LSE: PRU) has a very strong track record of delivering growth in earnings and dividend. Since 2008, underlying EPS has grown by a compound average growth rate (CAGR) of 16.4%, whilst annual dividends have grown by 16.2%. And with earnings covering dividends by 2.6 times, the Pru is in a strong position to sustain further dividend growth for many years to come.

But investors in the Pru need to be careful with the downturn in emerging markets. Slowing growth and the falling values of emerging market currencies will undoubtedly slow the pace of earnings growth. However, it’s not all doom and gloom for the Pru’s fundamentals. The low levels of insurance penetration in emerging markets should mean that premiums would continue to grow faster in emerging markets than in developed markets, even as economic growth slows.

Should you invest £1,000 in Aviva right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Aviva made the list?

See the 6 stocks

Shares in the Pru have a prospective dividend yield of 2.6%.

Aviva

Aviva (LSE: AV), which has been a laggard in the sector for many years, is seeing a turnaround in trading conditions and profitability. Premiums are returning to growth as economic conditions improve. And, on top of this, its combined ratio — a measure of underwriting profitability — is at its best level in eight years, at 93.1%.

Trading at 10.8 times its expected 2015 earnings, Aviva’s shares are significantly cheaper than shares in the Pru, which trade at 13.8 times their expected earnings. Although this is a reflection of its weaker long-term growth prospects, Aviva is highly cash-generative and is set to deliver superior cash returns to shareholders. Aviva’s prospective dividend yield in 2015 is 4.1%, and analysts expect this will improve further to 4.7% by the following year.

Old Mutual

Old Mutual’s (LSE: OML) shares are also affected by the slowdown in emerging markets. But so far, earnings remain robust, as it continues to experience growth in its banking and asset management businesses. The group is set to report underlying EPS growth of 10% this year, and its shares are currently trading at a forward P/E of  just 10.5. On top of this, its prospective dividend yield is 4.5%, and it has dividend cover of 2.1 times.

Marks and Spencer

It’s not just financials that make great dividend growth stocks. With UK consumer confidence picking up and a relatively robust domestic economy, investors should take a look at retail stocks as well.

Shares in Marks and Spencer (LSE: MKS) carry a prospective dividend yield of 3.7% and dividend cover is 1.8 times. The retailer does not have a perfect track record of delivering dividend growth, having frozen its dividend at 17p per share between 2011 and 2014. But dividends have begun to grow again, as profits are picking up and net debt is falling. 

Investment banks are bullish on the company, and out of the 26 recommendations, 12 are strong buys, 10 are holds, and only 4 are strong sells.

Should you invest £1,000 in Aviva right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Aviva made the list?

See the 6 stocks

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

These 4 FTSE shares have crashed hard. Which do I like today?

These four FTSE 100 stocks have plunged in value over the last month. But after this latest market meltdown, which…

Read more »

Investing Articles

1 FTSE 250 stock that analysts are calling a ‘Strong Buy’

The FTSE 250 can be overlooked by investors, but analysts believe this stock in particular could be undervalued by as…

Read more »

Close up of a group of friends enjoying a movie in the cinema
Investing Articles

I asked ChatGPT to name 5 FTSE shares for the perfect SIPP. Here’s what it picked

Harvey Jones called on ChatGPT to help him decide which shares would be right to buy for a well-balanced SIPP.…

Read more »

Investing Articles

Should I load up on Rolls-Royce shares after the 17% drop?

Rolls-Royce shares have pulled back sharply in the FTSE 100 in recent weeks, leaving this Fool to wonder if he…

Read more »

Investing Articles

Is this the best S&P 500 stock to consider buying in these volatile times?

With bullion prices still rocketing, I think buying the S&P 500's only gold stock is worth serious consideration right now.

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

Yielding 7.25% but with a P/E of 186x! What’s up with the BP share price?

Harvey Jones thought the BP share price was a brilliant bargain but it's only brought him a world of trouble.…

Read more »

Asian man looking concerned while studying paperwork at his desk in an office
Investing Articles

Down 26% with a 7% yield! Could this little-known FTSE 250 gem make a comeback?

Mark Hartley considers the long-term prospects of FTSE 250 recruiter Page Group. Weak results have sent the price tumbling but…

Read more »

Investing Articles

Analysts are calling Diageo shares a strong buy! Are they mad?

Analysts still have faith in Diageo shares, with 10 of them giving it the highest possible stock rating. Harvey Jones…

Read more »