Dividend investing is a popular strategy to build long-term wealth, but it’s important to remember that yield is not the only factor to consider. There are many high-yielding stocks out there, but if you’re looking for reliable stocks for the long haul, it’s often best to look for quality companies with strong fundamentals and steadily growing dividends.
Dividend growth
Lloyd’s of London insurer Hiscox (LSE: HSX) is one such example. The Bermuda-incorporated insurer is set to lift its interim dividend by a penny per share to 9.5p, in a move which brings it closer to fulfilling management’s target dividend growth of 15% this year. This gives shares in Hiscox a prospective yield of 2.4% at the current share price.
The insurer said this morning that the net premiums earned during the six months to 30 June rose by 22% to £936.6m. This helped pre-tax profits, in constant currency terms, to climb 12% against the same period last year, to £133.5m.
When foreign exchange movements were taken into account, the figures looked a lot less cheerful as statutory pre-tax profits fell by more than half to £102.6m. However, it’s important to remember that currency volatility is only a short-term issue. Long-term fundamentals remain broadly intact, with the underlying combined ratio (a key measure of underwriting profitability), up by just 1.5 percentage points, to a still impressive 89.9%.
One of the key attractions of Hiscox is its growing retail business, which once again was its standout performer. The growth in retail continues to offset much of the weakness from its specialist London insurance business. Gross written premiums there declined 8% in the first half, compared to a 27% increase from the retail segment.
That’s because the pricing environment for larger premium, catastrophe-exposed lines remains tough as rating pressure continues amid excess underwriting capacity and historically low loss ratios. On the upside however, Hiscox had minimal exposure to some high-profile losses in the industry this year, including the Grenfell Tower fire and Cyclone Debbie, which hit Australia in March.
Demographic shift
Elsewhere, newly-listed Impact Healthcare REIT (LSE: IHR) could be a great pick for investors looking for long-term exposure to the property market. As an investor in residential care homes, this REIT looks set to benefit from two ongoing tailwinds, namely an ageing population and the chronic shortage of suitable properties for caring for the elderly.
The REIT’s property portfolio currently consists of 57 residential care homes, following the acquisition of the Seed Portfolio and Saffron Court in Leicester in May and June, respectively. And as is typical for the sector, Impact Healthcare benefits from long lease terms with upwards-only annual RPI-linked rent reviews. This enables the REIT to earn steadily-growing income and gives it significant protection against a potential downturn in the property market.
Looking ahead, the company sees a strong pipeline of attractive new potential investment opportunities, which includes further acquisitions and asset management opportunities. Subject to financing, it is set to move forward with plans to expand three of its existing homes to create 92 additional beds. With no debt in place at present, Impact Healthcare surely has plenty of potential for growth.
Shares in the REIT currently trade at a 5% premium to its net asset value, with a prospective dividend yield of 5.8% this year.
