These two dividend champions have turned £1,000 into £1,500 this year

Can you afford to miss these two dividend champions?

| 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.

Every investor wants an opportunity to get rich quick with little risk. Unfortunately, these opportunities are few and far between. Most of the time, an attempt to get rich quick by investing in some early-stage growth company just ends in tears. 

However, this year two UK large-cap dividend champions have produced some outstanding returns for investors with both capital gains and dividend income, proving there are opportunities out there to help you build wealth quickly without taking on the extra risk. 

BP (LSE: BP) and BBA Aviation (LSE: BBA) have both returned around 50% this year including reinvested dividends. Will there be a repeat of this performance next year? 

A bumper year

Heading into 2016, both BBA and BP had fallen out of favour with the market. Shares in BBA ended 2015 down 50% (excluding dividends) due to concerns about the company’s acquisition of Landmark Aviation, funded by way of a £748m rights issue. Meanwhile, BP was suffering from the general malaise overhanging the oil market. Shares in BP ended the year down 17% excluding dividends. 

As investors have regained confidence in BP’s outlook, shares in the company have pushed higher this year steadily. Rising oil prices, as well as management’s actions to cut costs, improve margins and sell off non-core assets, have helped rekindle confidence in the group’s outlook. BP reported third quarter profits of $933m on an underlying replacement cost basis compared to $720m for the previous quarter and $1.8bn for the third quarter of 2015.

Including dividends, shares in BP have produced a total return of 46% year-to-date and while further capital growth depends on oil prices, the shares remain a top income pick. Shares in BP currently support a yield of 6.4%. 

Further growth ahead

Shares in BBA have added 45% this year as the company has proved the doubters wrong about its Landmark acquisition. Revenue in the 10 months to the end of October rose 27% year-on-year, boosted by the acquisition of Landmark and by good organic growth in its Signature division.

For the first half of 2016 BBA reported a 51% increase in pre-tax profit to $106m and a 677% increase in free cash flow to $92m. For the full year, City analysts have pencilled-in pre-tax profits for the group of £190m, nearly two-and-a-half times higher than last year’s figure of £80m. Further growth is expected for 2017 as synergies from the Landmark deal are realised. For full-year 2017 the City is expecting the company to report a pre-tax profit of £229m and earnings per share of 18.4p, up 18% year-on-year.

Based on this growth outlook, I believe BBA’s shares could replicate their 2016 performance again next year. If you include BBA’s dividend payouts to investors this year, the shares have produced a total return of 56%. At present, the shares support a yield of 3.5%, and the payout is covered twice by earnings per share. 

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.

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended BBA Aviation. The Motley Fool UK has recommended BP. 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

How I’d use an empty Stocks and Shares ISA to aim for a £1,000 monthly passive income

Here's how using a Stocks and Shares ISA really could help those of us who plan to invest for an…

Read more »

Investing Articles

This FTSE stock is up 20% and set for its best day ever! Time to buy?

This Fool takes a look at the half-year results from Burberry (LON:BRBY) to see if the struggling FTSE stock might…

Read more »

Investing Articles

This latest FTSE 100 dip could be an unmissable opportunity to pick up cut-price stocks

The FTSE 100 has pulled back with the government’s policy choices creating some negative sentiment. But this gives us a…

Read more »

A young woman sitting on a couch looking at a book in a quiet library space.
Investing Articles

As the WH Smith share price falls 4% on annual results, is it still worth considering?

WH Smith took a hit after this morning’s results left shareholders unimpressed. With the share price down 4%, Mark Hartley…

Read more »

Investing Articles

The Aviva share price just jumped 4.5% but still yields 7.02%! Time to buy?

A positive set of results has put fresh life into the Aviva share price. Harvey Jones says it offers bags…

Read more »

Investing Articles

Can a €500m buyback kickstart the Vodafone share price?

The Vodafone share price has been a loser for investors in recent years, and the dividend has been cut. We…

Read more »

Frustrated young white male looking disconsolate while sat on his sofa holding a beer
Growth Shares

3 mistakes I now avoid when choosing which growth stocks to buy

Jon Smith runs through some of the lessons he's learnt the hard way over the years about what to look…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Should I follow Warren Buffett and sell my favourite shares?

Billionaire US investor Warren Buffett has been selling tons of Apple shares and other stocks of businesses he thinks are…

Read more »