3 top dividend stocks to consider before the ISA deadline

As we approach the ISA deadline, Paul Summers picks out three great options for dividend investors.

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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.

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With the end of the current tax year just around the corner, time is running out for investors to take advantage of their annual £20,000 ISA allowance. Fail to use it by April 5 and it’s gone forever.

For those seeking income from their investments, however, there’s another big reason to get things sorted. Thanks to the forthcoming cut to the dividend allowance (from £5,000 to £2,000), it’s now more important than ever to shelter big payers within these tax-efficient accounts.

With those investors in mind, here are three companies that I think look decent picks at the current time.

Grab those dividends

Harry Potter publisher Bloomsbury‘s (LSE: BMY) share price may have been somewhat erratic over the last year — bouncing around between 160p and 180p — but recent trading suggests that its ability to pay decent dividends isn’t in danger.

Last week’s update for the year to the end of February revealed that profits would be “well ahead” of management expectations as a result of “excellent sales” and “lower than anticipated returns“. At around £25m, the company’s net cash position is also likely to be “significantly ahead” of that predicted.

Shares in the small-cap come with a forecast 4% yield based on current earnings estimates for the next year. The fact that increases in the total payout have been remarkably consistent over the years at around 4%-5% is also worth highlighting.

All this for a forecast 14 times earnings. That looks a pretty good deal to me.

Next on my list of top picks for dividend investors would be £700m cap fantasy figure maker Games Workshop (LSE: GAW) — a company whose share price has climbed almost 350% in just two years, making it one of the best performers in the main market.

February’s (extremely brief) trading update was positive with the Nottingham-based business stating that recent growth trends had continued to the end of January. As a result, sales and profits for the current year to date were “slightly above expectations“. 

Even if owners are unlikely to see share price gains similar to those experienced in recent years, Games Workshop boasts excellent free cash flow, a robust balance sheet, repeatedly high returns on the capital it invests and great operating margins. A valuation of 13 times earnings still doesn’t feel excessive, particularly given the 5.3% yield on offer.

Mid-cap instant service equipment provider Photo-Me International (LSE: PHTM) may not grab many headlines but it looks another solid option for dividend hunters.

December’s interim results were decent enough with revenue up 7.8% (to £122.2) at constant currency. Earnings before interest, tax, depreciation and amortisation (EBITDA) rose 7.9% to just under £45m as the company revealed “continual strong performance” in its various operations. Particularly noteworthy was the 75% rise in total revenues at its laundry business, going some way to explaining why this is now seen as a “primary growth driver” for the Bookham-based firm. 

Although net cash levels fell due to ongoing investment and — positively — higher payouts to shareholders, Photo-Me still had £47.1m at the end of the six months.

Perhaps the most important news for income investors, however, was the 20.1% hike to the interim payout. Based on current estimates, it looks likely that the stock will yield just under 5% in the current financial year. With the best instant access cash ISA offering a paltry 1.3%, I know where I’d rather put my money.

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 considered so you should consider taking independent financial advice.

Paul Summers 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.

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