Robust conditions in the Teutonic economic powerhouse convince me that Summit Germany (LSE: SMTG) has what it takes to pay fatty dividends long into the future.
In 2018 the company is predicted to record another 5% earnings rise, laying the foundation for further payout growth. A dividend of 4.9 euro cents per share is currently forecast, up from 4.02 cents in 2017 and resulting in a decent 4.2% yield.
And with earnings expected to slip 3% higher next year a 5 cent dividend is being tipped, thus nudging the yield to 4.3%.
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An added bonus is that Summit Germany can be picked up on a forward P/E multiple of 13 times. This is shockingly cheap in my opinion given the progress the company is making to capitalise on the strong German real estate market — pre-tax profit more than doubled last year to €128.7m. It’s also cheap due to the shortage of residential and commercial developments that should keep earnings on an upward slope well into the future.
Rental royalty
Yields over at VP (LSE: VP) may not outstrip those of the broader market. But the rate at which the business is lifting dividends should put the company well and truly on the radar for those seeking brilliant ways to fund their retirement.
Supported by a chubby record of double-digit percentage earnings growth, the specialist equipment rental group has been able to lift the annual payout by 80% in the five years to fiscal 2017. And when it reports for the period to March 2018, it is expected to put in a similar profits performance, meaning the dividend is also predicted to move to 25.2p per share from 22p the year before.
City analysts are expecting profits to keep piling higher in the medium term at least, with rises of 19% and 9% forecast for fiscal 2019 and 2020 respectively. Accordingly dividends are expected to maintain their northward march also, so figures of 29.3p for this year and 31p for next year are being bandied about by the boffins.
These projections yield 3.3% and 3.5% respectively. However, chunky yields and the prospect of additional dividend hikes down the line are not the only cause for celebration as current payout projections also look pretty safe. Indeed, they are covered between 3.2 times and 3.3 times through to the close of fiscal 2020, sitting comfortably inside the accepted safety terrain of 2 times or above.
The patchy outlook for the UK construction market means that VP isn’t without its degree of risk. However, I would consider an ultra-low forward P/E ratio of 9.5 times to be reflective of this.
Besides, I believe investors can take confidence from the company’s resilience in spite of these trying conditions. It noted in April that it “has experienced consistent demand from its key infrastructure, construction and housebuilding markets.” And the impact of recent acquisition activity reinforces my belief that profits, and thus dividends, should keep on rising.
