One 8% yield and one 6% yield I’d buy and hold forever

Royston Wild looks at two brilliant dividend shares that could make you rich.

| 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.

The scale of Britain’s homes shortage, allied with inadequate government action to boost the country’s housing stock, convinces me that Crest Nicholson Holdings (LSE: CRST) should remain a lucrative dividend share for many years to come.

And with the FTSE 250 constructor, like many of its London-quoted peers, having seen its share price dive in 2018 (and touch 16-month troughs just this week) I reckon now is a great time for dip buyers to grab a slice of the action.

Yields rising to 9%

Share pickers have been put off the housebuilders of late after a slew of industry data underlined the moderation in home price growth that really kicked off last year.

Declining property values are no great surprise given the chronic political and economic uncertainty that has put the rampant homes demand of yesteryear to the sword. But on the brighter side, homes demand remains broadly stable and the Bank of England announced last month that mortgage approvals recovered from the three-year troughs plumbed at the turn of the year to record the biggest month-on-month increase since April 2015 in February.

Ultra-attractive interest rates and the government’s Help To Buy scheme are helping to keep homes demand afloat, if nothing else. For the likes of Crest Nicholson, meanwhile, a lack of available properties entering the market is propelling demand for new-build homes ever higher and keeping revenues on a skywards trajectory.

City analysts are predicting that earnings at Crest Nicholson will continue to grow at a much shallower rate compared to the double-digit rises seen before the EU Referendum as slower demand and heavier costs across the construction industry weigh. Advances of 6% and 13% are forecast for the years to October 2018 and 2019 respectively.

Still, these robust figures are enough to underpin predictions of further dividend growth. And so the payout of 33p per share of fiscal 2017 is expected to rise to 35.7p this year and to 40.3p in the following period, resulting in large yields of 8% and 8.9% respectively.

And a mega-low forward P/E ratio of 6 times seals Crest Nicholson’s appealing investment case, in my opinion.

More gigantic yields

I feel those on the lookout for dirt-cheap dividend stocks also need to give Headlam Group (LSE: HEAD) a close look today.

Supported by an expected 6% earnings rise in 2018, the floor coverings giant is expected to raise the dividend to 27.1p per share from 24.8p last year, thus creating a mammoth 6.4% yield.

Moreover, the 4% profits advance forecast for next year leads to predictions of a 28.4p dividend, which in turn nudges the yield to 6.7%.

Despite its bright earnings outlook however, Headlam can be picked up on a forward P/E ratio of just 9.6 times. This is much too cheap given the waves it continues to make across Europe.

The small-cap saw like-for-like revenues in Europe rise 4.2% last year, speeding up from the 3.1% advance reported in 2016. And Headlam is still active on the M&A stage to continue grabbing custom on foreign shores, the business having made three acquisitions last year and more recently Netherlands-based Dersimo earlier in March. There’s plenty for growth and income seekers to get stuck into here.

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 of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Photo of a man going through financial problems
Investing Articles

I’d stop staring at the Nvidia share price and buy this FTSE 100 stock instead

This writer reckons there is a smarter way to invest in Nvidia today without taking on stock-specific risk. Here is…

Read more »

Young lady working from home office during coronavirus pandemic.
Top Stocks

5 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Young Asian man drinking coffee at home and looking at his phone
Dividend Shares

These 3 FTSE 250 stocks offer me the highest dividend yields, but should I buy?

Jon Smith considers FTSE 250 shares with a very high yield, but questions whether the income is going to be…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Is FTSE 100 takeover target DS Smith a great buy?

A mega-merger between FTSE 100 giants DS Smith and Mondi has the City abuzz. But is there any value in…

Read more »

Young Black man sat in front of laptop while wearing headphones
Investing Articles

The WPP share price dips as profits fall. Here’s why it could be a top dividend buy

I'm starting to think the WPP share price undervalues the stock, especially if the long-term dividend outlook comes good.

Read more »

Black father and two young daughters dancing at home
Investing Articles

A £3K investment buys me 632 shares in 2 stocks for a second income!

This Fool explains how a second income is possible through dividend-paying stocks and details two picks that could help her.

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

Here’s what these results tell me about the Lloyds share price

A policy of progressive shareholder returns, including big dividend yields, makes the Lloyds share price look super cheap to me.

Read more »

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

Passive income from 9.2% yield stock could cut pressure as costs spike

Passive income is one way to reduce the pressure on families, especially as a new study finds a third of…

Read more »