I always insist that when it comes to dividends, a long-term progressive one is better than a big one today that is unsustainable. I’ve identified two for you that I believe should provide years of rising income — but do be careful and be sure to do your own research first.
Wealth generates profit
If I showed you a company that has nearly doubled its annual dividend in five years, and has forecasts for big rises this year and next which would massively outstrip inflation and which should be amply covered by earnings, would you be impressed?
And what if I told you its share price had trebled over that same period, to 346p today?
Should you invest £1,000 in Brewin Dolphin Plc right now?
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Well, that’s the recent track record of investment manager Brewin Dolphin Holdings (LSE: BRW). That stock market bullishness we’ve seen of late, fuelled by the fall in sterling, has helped make that look good. But over the five-year period, Brewin Dolphin shares have run massively ahead of the FTSE 100 overall — a good investment manager can be a nice way to gear up profits from a rising stock market.
Good so far
Interim results in May support the City’s predictions, with funds under management up 6.8% (against a 6.1% rise in the FTSE 100), and net discretionary inflows up by an annualised 7.6%.
Adjusted EPS gained 13%, which is well ahead of the mooted full-year rise of 7%, and the interim dividend was lifted by 10.4%.
We’re looking at a forward P/E of 15.6 for 2018, which I see as a modest valuation for a company whose dividend is expected to yield 4.7% that year. And the big share price rise we’ve already seen — well, I see that as a nice extra bonus for income seekers.
Top property share?
As dividend picks go, a company that only started paying them in 2016 might look like a strange one to plump for, but that’s deceptive.
And the commercial letting business might not sound very exciting (though if you want excitement, I’d say put your money into safe long-term investments and go bungee jumping). But that’s what CLS Holdings (LSE: CLI) does, and I reckon it does it pretty well.
The thing is, CLS has actually been redistributing cash to shareholders for years, in the form of buybacks — so those who wanted income would have to sell some shares to get it. But last year, after more than doubling its EPS over the previous five years, the company switched to a progressive dividend policy and shelled out for a 2.6% yield.
That’s a 23% increase in distributions over the previous year, and analysts are expecting the yield to reach 3.4% by 2018. Those rises are well ahead of inflation, and with strong cover by earnings, I can see an attractive long-term upwards trend here.
Oodles of cash
CLS aims to provide stable long-term cash flows, which is the lifeblood of any income investment. And along with 2016 results, executive chairman Henry Klotz spoke of the company’s “strong balance sheet and ample liquid resources“.
The share price has more than trebled over the past five years to 214p, though now that distributions have switched to dividends that’s likely to slow. We’re looking at P/E multiples of around 19, which might seem a bit high, but with a basic net asset value per share of 215p at December (adjusted for May’s 10-1 split), I’m seeing good value.
