2 great dividend stocks for the next five years

The next five years could be a golden spell for FTSE dividends and these two look appealing.

| 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.

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.

Although finance-related stocks have been through some turmoil, traditionally it’s been one of the best long-term businesses to be in. And with banks and investment firms looking steadier than they’ve been for years, it could be a very good time to buy.

Better than cash in the bank

If you want a bank dividend that was untroubled by the financial crisis, look no further than Arbuthnot Banking Group (LSE: ARBB). Yields might not have been high, but the occasional special payment more than makes up for that.

The year just ended in December 2016 was no exception, with ordinary dividends lifted 6.9% to 31p — for a yield of 2.1% on today’s share price of 1,476p.

But that was overshadowed by the payment of special dividends during the year of 325p per share, which is pretty impressive for a bank that saw net assets per share rise by 23% during the year and climb nearly sevenfold in the past six years. If you want to invest in a company that’s good at generating cash, you could do a lot worse than going for Arbuthnot.

The rest of the figures looked impressive too, with Arbuthnot Latham customer deposits up 11% to £998m, written loan volume up 39% to £227m, and assets under management up 16% to £920m.

Chairman and chief executive Sir Henry Angest described the year as a “momentous and highly profitable” one, in which a number of corporate transactions should allow it to develop over time “into a more significant private and commercial bank“.

What about valuation? We’re looking at a 2018 P/E of a bit over 18 based on current forecasts. That looks a bit high by long-term FTSE standards — and it’s around twice the valuation of Lloyds Banking Group.

But Arbuthnot might just be the best managed bank out there.

Long-term strength

IFG Group (LSE: IFP) shareholders seem less pleased today as their shares dropped 9% to 136p, after the financial services group revealed a fall in 2016 profits which was blamed on falling interest rates.

While the group’s James Hay and Saunderson House subsidiaries saw combined revenue perk up by 10% to £78.5m, overall pre-tax profit from continuing operations fell 26% to £6.4m and IFG’s adjusted earnings per share dropped by 7% to 7.57p. 

There were exceptional costs to the tune of £1.7m too. But the reaction looks a little overdone to me, as the balance sheet firmed up a little with net cash up 3.3% to £28.2m and there’s no debt on the books. Chief executive John Cotter said: “We enter 2017 with both businesses in stronger positions than last year” and spoke of “positioning the group for sustainable growth“.

Forecasts do make the shares look attractive, with two strong years of earnings growth dropping the P/E to only around 12.5 by 2018. We’re also looking at attractive PEG valuations of 0.3 this year and 0.7 next, and it’s pretty rare for a financial services firm to exhibit attractive growth prospects like that.

But it’s the long term that counts, and I see see IFG’s progressive dividend policy as a big plus, with a 2018 yield expected to reach 4%. The firm’s markets, serving high-net-worth clients, should also be quite lucrative over the next decade and more, and I see IFG as one to buy and tuck away for years.

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.

Alan Oscroft owns shares of Lloyds Banking Group. 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

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

Is Rolls-Royce’s share price an irresistible bargain?

Is Rolls-Royce's share price the FTSE 100's greatest bargain today? Royston Wild explains why he would -- and wouldn't --…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Is the Vodafone share price a wonderful bargain or a horrible value trap?

As the Vodafone share price continues to fall, is it now a stock to buy with a view to a…

Read more »

Hand of a mature man opening a safety deposit box.
Investing Articles

I’d buy 95,239 shares of this banking stock to generate £200 of monthly passive income

Muhammad Cheema takes a look at how Lloyds shares, with a dividend yield of 5.9%, can generate a healthy monthly…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Can FY results give the Antofagasta share price a long-term boost?

The Antofagasta share price has had a good five years. Now the company says it's set to enter a new…

Read more »

Person holding magnifying glass over important document, reading the small print
Dividend Shares

Can I make sustainable passive income from share buybacks?

Jon Smith notes the rise in share buybacks from FTSE 100 companies, but flags up why they aren't great for…

Read more »

Front view of a mixed-race couple walking past a shop window and looking in.
Investing Articles

After the Currys share price rockets, here are more potential UK takeover targets!

The Currys share price has surged 39% higher in response to news of a takeover bid. Which UK stocks could…

Read more »

Investing Articles

Down 25%, where will the British American Tobacco share price go next?

The British American Tobacco share price has taken a hit. But this Fool isn't deterred. He think's now could be…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

2 cheap dividend stocks I’d snap up in a heartbeat!

This Fool is on the look out for quality dividend stocks and earmarks these two firms as great options to…

Read more »