Investor enthusiasm for Close Brothers (LSE: CBG) rose back towards recent 14-month peaks in end-of-week business following the release of reassuring financials.
The merchant banker announced that its loan book had grown 2.3% between July and December, to £6.6bn, and on a year-on-year basis this was up 9.3%. This performance was “driven by good growth particularly in the premium finance and property businesses,” Close Brothers noted.
The disposal of its OLIM Investment Managers unit forced assets under management down to £7.8bn from £8bn a year earlier, it advised. But the business noted “improved market conditions” at its asset management arm, and that “both market movements and net inflows were positive.”
The bubbly results prompted the financial giant to comment that “we are confident in delivering a strong result for the first half as well as a good outcome for the full 2017 financial year.”
The City expects Close Brothers to experience a little earnings trouble in the immediate term, however, and has chalked-in a 4% bottom-line dip for the period to July 2017. But this is expected to be a temporary blip in the company’s long-running growth story and a 4% recovery in fiscal 2018 currently expected.
And Close Brothers’ still-robust earnings picture is expected to underpin further dividend growth. Last year’s 57p per share reward is anticipated to rise to 58.5p in the current period, and to 61.9p in 2018.
Not only do these figures yield a chunky 4% and 4.3% respectively, but dividend coverage rings in at 2.1 times through to the close of next year, nudging above the widely-regarded security watermark of two times.
Given the solid momentum across Close Brothers’ businesses, I reckon the stock could prove a shrewd income investment for the years to come.
Pulling back
The market has reacted less enthusiastically to Record Group’s (LSE: REC) latest trading statement, the stock last 5% lower from Thursday’s close and pulling away from three-year tops struck earlier this week.
The currency manager advised that assets under management equivalents rose to $56.6bn as of the end of December, up from $55bn at the end of September. But in sterling terms these dropped to £45.8bn from £42.4bn previously.
Record chief executive James Wood-Collins said: “US dollar strength dominated the second half of the quarter following the seemingly-unexpected result of the US presidential election in early November, with President-elect Trump’s economic ambitions being seen as supportive of the dollar.”
City brokers expect Record, supported by an expected 1% earnings rise, to lift the dividend fractionally in 2017, from 1.65p last year to 1.7p. Although the bottom line is predicted to swell an extra 8% in 2018, the firm is expected to keep rewards locked around this year’s levels.
These projections still yield a meaty 4.5%, taking apart the London big-cap average of 3.5% by some distance.
But dividend chasers must bear in mind that the projected payments for Record during this year and next are also covered 1.5 times and 1.6 times respectively by earnings, falling short of the aforementioned safety benchmark.
With geopolitical and macroeconomic turbulence set to persist in 2017 and probably beyond, I believe predictions of a dividend lift at Record could be considered a little less robust.
