2 dividend stocks that could make you a million

Royston Wild looks at two income stocks that could deliver you a fortune.

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Pennon Group (LSE: PNN) moved further away from recent seven-month lows in Monday trading, although a 1% rise following latest trading details was hardly a ringing vote of confidence.

The water supplier and waste management play advised that it is “on track” to meet management’s expectations across both divisions.

Pennon said it “continues to deliver a robust underlying financial performance for 2017/18.” And it added: “With our clear strategy and strong balance sheet, Pennon is well-placed to continue to deliver for customers, communities and shareholders.”

I for one reckon this reassuring update should  command more attention from the investment community today.

Now, the nature of Pennon’s operations means that updates like these are hardly likely to make investors’ hearts skip a beat. But the defensive nature of such services means that those seeking reliable earnings growth may want to take a look, even if the company is not totally immune to the impact of a slowing economy. Current broker forecasts put bottom-line growth for the periods to March 2018 and 2019 at 2% and 12% respectively.

This means that the FTSE 250 star trades on a forward P/E ratio of 16.6 times, a decent reading if somewhat unspectacular.

However, Pennon’s solid earnings outlook should certainly catch the eye of dividend chasers, something that analyst predictions certainly point to.

In the current fiscal period a total payment of 38.5p per share is forecast, improving from 35.96p last year and yielding a mammoth 4.8% (by comparison Britain’s listed blue-chips yield around 3.5%).

And the news gets even better for next year — a predicted 41.3p dividend drives the yield to a lip-smacking 5.2%.

On strong foundations

Redrow’s (LSE: RDW) reputation as a generous dividend payer is also expected to continue according to the City’s teams of number crunchers. And this is hardly a revelation, certainly not in my opinion, given the favourable supply/demand dynamic for Britain’s homebuilders.

Latest home price data from the Office of National Statistics earlier this month showed property values up 5.1% during the 12 months to July. Now, although this clearly shows some cool-down from the breakneck rises of yesteryear, growth remains pretty solid as encouraging interest rates and the government’s ‘Help To Buy’ purchase scheme means the buyers continue to outstrip the number of homes on the market.

Indeed, these favourable market dynamics were reported by Redrow itself as recently as this month, which upgraded both its revenues and profits forecasts for the year to June 2018. In the last fiscal year it reported record revenues of £1.66bn with its order book standing at an all-time high as of June, at £1.1bn.

So the City expects earnings at the construction giant to rise 10% in the current fiscal period, resulting in a forward P/E ratio of 7.3 times. And like Pennon Group, there is plenty for income chasers to get excited about — a 21.9p per share dividend is currently predicted, up from 17p last year and resulting in a chunky 3.9% yield.

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.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Pennon Group and Redrow. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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