This extraordinary small-cap has increased its dividend for over 70 years

A small-cap dividend powerhouse and a Footsie star both have huge appeal right now, says G A Chester.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

There are some real hidden gems among the smaller companies on London’s stock exchange. One such company has an extraordinary record of increasing its dividend for over seven decades and can rightly be described as a ‘blue chip’ of the FTSE SmallCap index.

The company in question released its half-year results today. I believe it’s an attractive buy for long-term investors and I’d also like to highlight a FTSE 100 dividend star that I reckon has huge appeal right now.

Small-cap powerhouse

Brewer and pubs group Fuller, Smith & Turner (LSE: FSTA) is the small-cap with the blue chip dividend record.

The company today reported an 11% rise in revenue for its half year to 24 September. Profit increased 6% and the board lifted the interim dividend by 5%.

The managed pubs and hotels division (responsible for getting on for two-thirds of profits) is thriving, but the tenanted division saw a 1% fall in operating profit. However, management has plans to get this division back into profit growth and has earmarked 18 sites for sale. The group’s brewery business saw beer and cider volumes decrease by 4%, but operating profit rose by 8% with craft beers performing strongly.

Founded in 1845 and still family controlled, Fullers invests in the business with a long-term perspective and has a strong balance sheet, backed by around £500m of property. I’ve no doubt the company will deal with the current challenges of higher business rates, the National Living Wage and Brexit (as well as potentially benefitting from more inbound tourists and ‘staycationers’). But it’s the way that the business is run for the long term — reflected in the tremendous dividend record — that’s the big appeal.

I’m anticipating a 19p dividend for the full year, which would be covered 3.2 times by analysts’ forecast earnings of 61p. At a current share price of 980p, the price-to-earnings (P/E) ratio is 16.1 and the dividend yield is 1.9%. I believe this represents excellent value for long-term investors, but if you’re in need of a higher immediate income, there’s a FTSE 100 company that could fit the bill nicely.

Blue chip blockbuster

Tobacco group Imperial Brands (LSE: IMB) posted its annual results last week for its financial year ended 30 September. The company reported a 9% rise in revenue and a 12% rise in earnings. The board increased the dividend by 10% for the eighth consecutive year and it has a “commitment to deliver dividend growth of at least 10% next year and over the medium term.”

The tobacco industry faces challenges from regulation and increased health awareness, but these are also disincentives to new entrants. The big incumbents should have many years ahead of generating huge quantities of cash from traditional and next-generation products, and Imperial looks particularly attractive value right now.

A 10% increase in the dividend for the coming year would take the payout to 171p, covered 1.6 times by analysts’ forecast earnings of 276p. At a current share price of 3,470p, Imperial’s P/E is an undemanding 12.6, while the higher dividend payout ratio than that of Fullers gives a smokin’ hot yield of 4.9%.

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.

G A Chester has no position in any shares mentioned. The Motley Fool UK has recommended Imperial Brands. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Businessman use electronic pen writing rising colorful graph from 2023 to 2024 year of business planning and stock investment growth concept.
Investing Articles

Could the FTSE 100 be set to soar in 2024?

The FTSE 100 keeps threatening to go off on a growth spree. And weak sentiment keeps holding it back. But…

Read more »

Investing Articles

Is this FTSE 100 stalwart the perfect buy for my Stocks and Shares ISA?

As Shell considers leaving London for a New York listing. Stephen Wright wonders whether there’s an undervalued opportunity for his…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

3 things I’d do now to start buying shares

Christopher Ruane explains three steps he'd take to start buying shares for the very first time, if he'd never invested…

Read more »

Investing Articles

Investing £300 a month in FTSE shares could bag me £1,046 monthly passive income

Sumayya Mansoor explains how she’s looking to create an additional income stream through dividend-paying FTSE stocks to build wealth.

Read more »

Investing Articles

£10K to invest? Here’s how I’d turn that into £4,404 annual passive income

This Fool explains how using a £10K lump sum can turn into a passive income stream worth thousands for her…

Read more »

Investing Articles

1 magnificent FTSE 100 stock investors should consider buying

This Fool explains why this FTSE 100 stock is one for investors to seriously consider with its amazing brand power…

Read more »

Rainbow foil balloon of the number two on pink background
Investing For Beginners

2 under-the-radar FTSE 100 stocks under £2

Jon Smith identifies two FTSE 100 stocks that he believes are getting a lack of attention from some investors but…

Read more »

Investing Articles

£8,000 in savings? I’d use it as a start to aim for £30k a year in passive income

Here's how regular investing in the UK stock market, over the long term, could help us build up some nice…

Read more »