As expected, the Bank of England has cut interest rates to 4.5%. This is great news for borrowers, not so much for those with cash savings beyond an all-important emergency fund. Thankfully, there’s an alternative to sticking money in a bog-standard bank account: dividend growth shares!
Strong and stable
One option that jumps out at me is online trading platform provider and FTSE 250-listed IG Group (LSE:IGG). Its shares are currently set to yield 4.7%. This cash return has also been rising in recent years. The dividends look set to be comfortably covered by predicted profits too.
Since IG earns more in commission fees when traders are particularly active, this might also be a good play for riding out periods of volatility in the markets (and even profiting from them).
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It’s not all gravy, though. This is a competitive space that frequently finds itself under the spotlight of regulators. So, there’s nothing to say that IG’s share price won’t yo-yo about the place every so often.
For someone intent on getting their money to work harder for them, however, I think it’s a great option to consider to kick things off. Despite the shares rising 50% in the last 12 months, a price-to-earnings (P/E) ratio of 10 still looks reasonable to me.
Massive yield
A second dividend growth stock worth pondering is molten metal flow engineering and technology specialist Vesuvius (LSE: VSVS).
Importantly, this firm operates in a completely different sector to IG Group. Again, that doesn’t mean the dividends are completely secure. But it does help to reduce the risk of no income at all being received. This £1bn cap business offers a stonking yield of nearly 6% for FY25. That’s getting on for nearly double the average across the FTSE 250.
One thing to be aware of is that steel and foundry markets in North America and Europe are expected to stay “subdued” for a while. This means profit from last year is likely to come in “slightly below” that achieved in 2023.
On a more positive note, management is reducing costs where it can and the balance sheet doesn’t look stretched as it stands.
Full-year numbers are due in March but I suspect a lot of negativity is already priced in.
Boring but beautiful
Completing the trio that I think are worth considering is old favourite — consumer goods giant, Unilever (LSE: ULVR).
Now, this isn’t a company that sets the pulse racing. But that’s surely not the goal. What matters more is whether a business boasts a better-than-average record of throwing increasing amounts of cash back to its investors.
Despite the occasional wobble, that’s been the case here. One of the UK’s biggest companies, Unilever has been a reliable source of passive income for decades thanks to our tendency to habitually buy Marmite, Persil and Lynx (and a whole lot more).
When times are tough, there’s certainly an argument for saying Unilever risks losing sales to retailers’ own-brand items. The 3.4% forecast yield is also good but not spectacular.
However, the company’s sprawling operations mean it’s not overly dependent on any one economy when it comes to earnings. I’d also argue that falling rates should mean previously-hesitant consumers will now be more willing to splash out on their favourite brands.
