The Motley Fool

£2k to invest? I would buy these 2 FTSE 100 stocks that love issuing special dividends

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.

Business man on stock market crash financial trade indicator background.
Image source: Getty Images

I think you would be hard pressed to find a company in the FTSE 100 that has a better record of returning cash to investors than InterContinental Hotels Group (LSE: IHG).

In the last three years alone, this company has issued special dividends worth 799p, excluding the regular distribution, which last year amounted to 87.7p. In total, the firm distributed 291.7p per share to investors in 2018 for a total yield of 6.1%.

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story. In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

Going back to the beginning of 2009, shares in IHG have produced a total return for investors of 23.6% per annum, turning every £1,000 invested a decade ago into £9,300. And I think there is an excellent chance that the company will continue to reward its investors with special dividends for the foreseeable future.

Asset light

Over the past few years, IHG has transformed its business by selling owned properties to franchisees. The results of these efforts is that the company has become highly cash generative, as it no longer needs to spend hundreds of millions of dollars every year opening, renovating and maintaining properties. Free cash flow has exploded as a result. Last year it generated free cash flow from operations of $508m, most of which was returned to investors.

According to its latest trading update, last year the company saw the highest level of “signings“, deals signed to open new rooms, in a decade with the number of agreements up 18% year-on-year. This bodes well for IHG’s future growth and dividend potential. Revenue per room increased 2.5% in 2018, and total group gross revenue rose 6.6% off the back of a 4.8% increase in the number of franchised and owned rooms across the business.

Analysts believe IHG’s earnings per share will increase 13% in 2019 and 7.7% in 2020, which, in my opinion, means investors are more than likely to see further substantial special dividends in the years ahead.

Turn around complete

Supermarket retailer Morrisons (LSE: MRW) has recently taken a leaf out of IHG’s book by announcing a special dividend following a robust trading performance in 2018. The group’s underlying profit before tax rose 8.6% in 2019, prompting management to declare a final dividend of 4.75p and a special dividend of 4p, which takes the total dividend to 12.6p — up 25% year-on-year. Including the special and regular dividend, I calculate investors buying the shares today will pocket a dividend yield of 5.5%.

Morrisons has a history of paying out special dividends alongside regular distributions when the going is good, and I expect plenty more from the group over the next few years.

Efforts by management to reduce debt has left it with a relatively clean balance sheet (net debt to equity of 22% at the end of 2018) and last year, the company generated £265m in free cash flow from operations, all of which was returned to investors.

Improving profit margins and the continued rollout of its wholesale supply deal, which is expected to produce revenues of nearly £1bn per annum for the retailer, should help Morrisons achieve earnings growth of 34% during the next two years according to the City. A similar increase in free cash flow could, in my opinion, mean further special dividends for investors are on the horizon.

All in all, now the company’s recovery is complete I think it is worth buying shares in Morrisons for its income potential.

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story.

In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended InterContinental Hotels Group. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.