While inflation may have fallen in recent months, dividend stocks are likely to remain popular among investors. Volatility remains high across global stock markets, and companies which pay a generous dividend may be seen as offering relatively strong defensive prospects.
A rising dividend may also be a catalyst on a company’s share price, since it indicates financial strength and confidence in its future. Therefore, these two FTSE 350 dividend stocks could be worth a closer look.
Strong performance
Reporting on Monday was engineering company Morgan Advanced Materials (LSE: MGAM). The first quarter of the year was a relatively positive one for the business, with its sales moving 6.5% higher on an organic constant currency basis.
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There was especially strong performance from the Carbon and Technical Ceramics division, where sales were 9% higher than in the previous period. Thermal Products also recorded a rise in sales of 6.2%, although there was a further decline in the performance of the Composites and Defence Systems business. In response, the company will now exit this segment at a cash cost of £6m.
Looking ahead, Morgan Advanced Materials is expected to report a rise in its bottom line of 9% this year, followed by further growth of 7% in the following year. This should support dividend growth, since the stock currently has a payout ratio of around 45%. This suggests that its dividends are highly sustainable and may grow at a faster pace than in the past.
Furthermore, an improving outlook for its key business units means that it could deliver a higher dividend yield than its current 4%. As such, with a price-to-earnings (P/E) ratio of 16, it could produce high total returns over the coming years.
Improving outlook
Also offering income potential within the FTSE 350 at the present time is financial services company Legal & General (LSE: LGEN). The business has a strong track record of dividend growth, with dividends having risen by around two-thirds over the last five years. This impressive level of performance is set to continue, with the company expected to report a rise in shareholder payouts of 12% over the next two years.
Legal & General’s recent results showed that it has continued to deliver high levels of profitability. Its performance in the UK has been sound, while growth opportunities in the US remain relatively widespread. It has focused on improving innovation, which in turn may have helped to improve customer loyalty to some degree.
With a dividend yield of 6% from a shareholder payout that is covered 1.6 times by profit, the company appears to be an enticing income option. Since it trades on a price-to-earnings growth (PEG) ratio of 1.8, it could offer a wide margin of safety. As such, with its profitability now at record levels, it could be the perfect time to buy it for the long term.
