Dividend investors often search for a high yield. And that’s wise. But the most important factor for me is the ability of a business to grow its dividends over time.
Therefore, today I’m focusing on the compound annual growth rate (CAGR) for the dividends of two companies.
Should you invest £1,000 in Schroders Plc right now?
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A market in good health
The first is Warehouse REIT (LSE: WHR), the Real Estate Investment Trust (REIT) investing in UK commercial property warehouse assets.
The data since 2018 shows a CAGR for the dividend of just over 50%. But that’s misleading because the figure has been affected by a big jump in the shareholder payment in 2019.
For context, there was zero dividend in 2017. And that was the year company came to the stock market. Then there was a small payment in 2018. But since then, the dividend has reached a meaningful level and has been growing well.
For example, the payment for the trading year to March 2019 was 4.78p per share. And for the coming year to March 2024, City analysts predict a payment of 6.48p per share. And to me, that’s a decent rate of growth.
But it’s made all the sweeter by the current level of the yield. With the share price near 110p, the forward-looking yield set against those analysts’ estimates is around 5.9%.
However, there are risks with this stock, of course. As there are with the shares of any business. For example, the share price has declined by just over 30% over the past year. This is, after all, a company with its fortunes aligned with a section of the property market. And it’s also vulnerable to the ups and downs of the wider economy.
But in December, the company reported strong leasing activity. And that suggests the warehouse occupier market in the UK is in good health.
Steady shareholder payments
Meanwhile, investment management company Schroders (LSE: SDR) has a CAGR for its dividend running at around 5.5%. And with the share price near 499p, the forward-looking yield for 2023 is running just below 4.5%.
Those figures look attractive to me. And I’m impressed by the way the business kept up shareholder payments through the pandemic.
However, the diversified asset manager is another firm that’s vulnerable to changes in general macro-economic and geopolitical events and trends. And one indicator of how difficult trading can be is the firm’s record of earnings.
In 2016, it posted a net profit of £490m with earnings of around 30p per share. And City analysts predict a net profit of £562m in 2023 with earnings of about 34p. So the dial hasn’t moved much over the period. Therefore, I’m not expecting growth in the years ahead to shoot the lights out.
However, I am expecting a general bull market for stocks. And if that happens, it will be good for Schroders. But the reverse is also true. A bear market could cause problems for the business.
Nevertheless, I’m primarily considering dividend stability and the potential for it to grow. And that’s even if the growth is modest. So for those things, I think Schroders is worthy of further research.
