Should you buy these 4%+ yielders following today’s results?

Royston Wild considers the investment prospects of two London dividend leviathans.

| 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.

Investor enthusiasm for Close Brothers (LSE: CBG) rose back towards recent 14-month peaks in end-of-week business following the release of reassuring financials.

The merchant banker announced that its loan book had grown 2.3% between July and December, to £6.6bn, and on a year-on-year basis this was up 9.3%. This performance was “driven by good growth particularly in the premium finance and property businesses,” Close Brothers noted.

The disposal of its OLIM Investment Managers unit forced assets under management down to £7.8bn from £8bn a year earlier, it advised. But the business noted “improved market conditions” at its asset management arm, and that “both market movements and net inflows were positive.”

The bubbly results prompted the financial giant to comment that “we are confident in delivering a strong result for the first half as well as a good outcome for the full 2017 financial year.”

The City expects Close Brothers to experience a little earnings trouble in the immediate term, however, and has chalked-in a 4% bottom-line dip for the period to July 2017. But this is expected to be a temporary blip in the company’s long-running growth story and a 4% recovery in fiscal 2018 currently expected.

And Close Brothers’ still-robust earnings picture is expected to underpin further dividend growth. Last year’s 57p per share reward is anticipated to rise to 58.5p in the current period, and to 61.9p in 2018.

Not only do these figures yield a chunky 4% and 4.3% respectively, but dividend coverage rings in at 2.1 times through to the close of next year, nudging above the widely-regarded security watermark of two times.

Given the solid momentum across Close Brothers’ businesses, I reckon the stock could prove a shrewd income investment for the years to come.

Pulling back

The market has reacted less enthusiastically to Record Group’s (LSE: REC) latest trading statement, the stock last 5% lower from Thursday’s close and pulling away from three-year tops struck earlier this week.

The currency manager advised that assets under management equivalents rose to $56.6bn as of the end of December, up from $55bn at the end of September. But in sterling terms these dropped to £45.8bn from £42.4bn previously.

Record chief executive James Wood-Collins said: “US dollar strength dominated the second half of the quarter following the seemingly-unexpected result of the US presidential election in early November, with President-elect Trump’s economic ambitions being seen as supportive of the dollar.”

City brokers expect Record, supported by an expected 1% earnings rise, to lift the dividend fractionally in 2017, from 1.65p last year to 1.7p. Although the bottom line is predicted to swell an extra 8% in 2018, the firm is expected to keep rewards locked around this year’s levels.

These projections still yield a meaty 4.5%, taking apart the London big-cap average of 3.5% by some distance.

But dividend chasers must bear in mind that the projected payments for Record during this year and next are also covered 1.5 times and 1.6 times respectively by earnings, falling short of the aforementioned safety benchmark.

With geopolitical and macroeconomic turbulence set to persist in 2017 and probably beyond, I believe predictions of a dividend lift at Record could be considered a little less robust.

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.

Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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

Investing Articles

Up 14% in 2024, what’s next for the Lloyds share price?

This Fool takes a closer look at what prompted the Lloyds share price to rise this year, and offers her…

Read more »

Investing Articles

5 FTSE 100 stocks to consider for a lifetime of passive income

I see lots of cheap dividend stocks in the FTSE 100 right now, but prices are starting to rise. Here's…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

3 growth stocks I’m desperate to buy as the FTSE 100 dips

Never waste a dip, says Harvey Jones. Three of his favourite growth stocks have fallen over the last month and…

Read more »

Investing Articles

I’d use a £10K ISA to try and generate £900 in dividends annually like this!

Christopher Ruane explains how he would invest a Stocks and Shares ISA in blue-chip companies to try and set up…

Read more »

Investing Articles

Here’s how I’d build a second income stream worth £1,228 a month by investing £10 a day!

A second income stream could come in handy later in life. This Fool explains how she’d build one by investing…

Read more »

Investing Articles

5 FTSE 250 stocks I’d buy for a lifetime of passive income

Here's why I think the FTSE 250 could be the best UK stock market index to go for in 2024…

Read more »

Union Jack flag triangular bunting hanging in a street
Investing Articles

Buy cheap FTSE shares, says HSBC

Analysts at HSBC have upgraded their rating of FTSE stocks and reckon the blue-chip UK index could carry on powering…

Read more »

Couple working from home while daughter watches video on smartphone with headphones on
Investing Articles

It could be worth buying the dip for this FTSE 250 stock, down 7% today

Jon Smith spots a sharp drop in a FTSE 250 stock but explains why this could just be a blip…

Read more »