3 stocks I’m tipping for dividend growth in 2017

Edward Sheldon looks at three stocks that he believes will increase their dividend payouts in 2017.

| 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.

I’m a huge fan of dividend growth investing as it’s an investment strategy that really allows you to put the power of compounding to work. With that in mind, here are three companies I’m tipping to increase their dividend payouts in 2017.

Legal & General Group

Insurance giant Legal & General Group (LSE: LGEN) currently sports one of the more sizeable yields in the FTSE 100 after paying out a generous 13.4p per share in dividends for FY2015. While this 5.6% dividend yield is approaching a level at which some investors may start to question its sustainability, I’m not fazed and I’m backing the insurer to increase its dividend in 2017.

The dividend coverage ratio is a useful one when it comes to assessing dividend sustainability. This ratio is calculated by dividing earnings per share by dividends per share and investors see a level of above 1.5 as being healthy. Legal & General’s coverage ratio currently stands at 1.39, which is a little on the low side, but certainly not a level to panic about.

Legal & General has boosted its dividend payouts by 19%, 21% and 22% over the last three financial years and city analysts expect the dividend growth to continue in FY2016, with a 7% rise forecast. While a hike of 7% may not be as prolific as the recent increases, it’s still a level comfortably above inflation and a nice little boost to your dividend cheque.

The stock is a favourite of prominent fund manager Neil Woodford, and with the valuation looking very reasonable on a forward looking P/E ratio of just 11.4, Legal & General looks to be a solid dividend growth stock for 2017 in my opinion.

DS Smith  

DS Smith’s (LSE: SMDS) yield of 3.15% may not be the largest in the FTSE 100, but it’s well-covered and the company’s recent dividend growth is impressive with increases of 12%, 14% and 25% over the last three financial years. City analysts have pencilled-in dividend growth of 10% for FY2017, meaning that the forward-looking yield now stands at a healthy 3.5%.

Recent half-year results were strong, with the company reporting revenue growth of 21% and an adjusted operating profit increase of 23%, or 9% at constant currency. Yet the stock can be bought on an undemanding P/E ratio of just 12.9 times next year’s forecast earnings and for this reason, I believe DS Smith offers the potential for capital growth and dividend growth in 2017.

Imperial Brands

Lastly, I reckon tobacco giant Imperial Brands (LSE: IMB) is a standout dividend growth stock at its current share price and I’m confident the company will lift its dividend payout in 2017. Imperial has increased its dividend by 10% for an impressive eight consecutive years and recently stated in its FY2016 results that it remains “committed to this level of increase over the medium term.

A 15% share price correction since mid-August provides an attractive entry point in my opinion, as the company’s yield has increased from 3.7% back in August to a healthy 4.4% now. And with a 10% dividend increase set to take the yield to 4.9% next year, Imperial Brands is a stock I’m tipping to do well in 2017.

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.

Edward Sheldon owns shares in Legal & General Group, DS Smith and Imperial Brands. The Motley Fool UK has recommended DS Smith and Imperial Brands. 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

£20,000 in savings? Here’s how I’d aim to turn that into passive income of £903 a month

Our writer shares one approach to passive income investing, spotlighting a quality FTSE 100 stock he recently added to his…

Read more »

Investing Articles

Great dividend stocks! Here’s the forecast for Associated British Food shares to 2027

Associated British Foods' shares have dropped in value this year. Does this present a dip-buying opportunity for dividend investors to…

Read more »

Investing Articles

Should I sell my FTSE All-Share index fund and buy a S&P 500 tracker instead?

Harvey Jones is wondering whether now is a good time to invest more money in the S&P 500, after a…

Read more »

Investing Articles

Should I buy dirt-cheap BT shares after the recent pullback?

BT shares were on the up but now they're sliding again after the board trimmed full-year guidance. Now Harvey Jones…

Read more »

Investing Articles

Up 28%, can the easyJet share price keep rising?

The easyJet share price has gained altitude over one year but plunged over five. Is now an attractive time for…

Read more »

British Isles on nautical map
Investing Articles

Should I buy more BAE Systems shares at 1,350p?

BAE Systems shares have had a fantastic run since early 2022, yet still don't appear overvalued. Is it now time…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

7% yield and a cheap valuation! Is this one of the best shares to buy this month?

Christopher Ruane has been looking for cheap shares to buy. This one has a 7% dividend yield, so is it…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

Should I buy National Grid shares for the big dividend before it’s too late?

This year's price weakness has left National Grid shares on what looks like a tempting valuation. I hope it doesn't…

Read more »