Dividends are the bread and butter of every portfolio. Many studies have shown that over the long term, dividends power the bulk of any portfolio’s returns and without these payouts, investors could be sacrificing as much as 4% per annum in returns over the long-term.
In today’s low-interest-rate environment dividends are even more important as they can give a new lease of life to your savings. So, here are three of my favourite dividend stocks for 2017.
Slow and steady
Furniture and flooring group SCS (LSE: SCS) may not be the most exciting company around, but it is an income champion.
Indeed, for the year ending 31 July 2016, City analysts expect the company to pay a dividend to shareholders of 14.5p per share, which equates to a yield of 8.5% at current prices. The shares currently trade at a forward P/E of 7.9 and the payout is covered 1.5 times by earnings per share.
Unfortunately, analysts aren’t expecting any fireworks from the group this year. Earnings per share growth of zero is pencilled-in for the year ending 31 July. Still, SCS’s low valuation and 8.5% dividend yield appear to make up for the lack of growth.
Putting shareholders first
Shares in DX Group (LSE: DX) lost around 75% of their value last year when the company warned on profits and ever since the shares have struggled to return to their former glory. Nonetheless, even though DX’s earnings per share have fallen by 50% since 2015, the company’s dividend payout of 2.5p is still covered twice by earnings per share indicating that the payout is safe for the time being.
A dividend payout of 2.5p per share equates to a dividend yield of 13.9% at current prices. What’s more, just like SCS, shares in DX trade at a highly attractive valuation. City analysts are projecting group earnings per share of 4.8p for the year ending 30 June 2017, meaning that the shares currently trade at a forward P/E of 3.8.
Legal services group NAHL (LSE: NAH) will be glad to have put 2016 behind it. Concerns about the company’s business model knocked 47% off the share price during 2016 as investors fled the stock. However, City analysts aren’t predicting doom for the firm any time soon.
For the year ending 31, December 2016 analysts are expecting the group to report earnings per share growth of 16% although these gains are expected to disappear next year. For the year ending 31, December 2017 earnings per share are projected to fall 21% back to the level reported for 2015. Analysts are also expecting management to reduce the company’s dividend payout in line with declining earnings. From a payout of 19.2p for 2016, analysts have pencilled-in a full-year dividend payout of 15.9p per share for NAHL during 2017, down 17.2% year-on-year but still equal to a dividend yield of 11.8%.
Further, NAHL’s shares currently trade at a forward P/E of only 5.7, which is cheap even considering the market’s concerns about the company’s outlook.