If you have £3k to invest in dividend stocks, then I highly recommend investing a portion of this money in lender S&U (LSE: SUS).
S&U has been around for decades and during this time it has built a leading motor finance and bridging loan business, which has generated tremendous returns for investors.
One of the reasons why I think the business has been able to outperform many of its peers in the industry is the fact that the group is still family-owned.
Research shows that family-owned businesses tend to perform better over the long term compared to non-family-owned because the family members make better long-term capital allocation decisions. In other words, they prioritise long-term investment over short-term profitability.
That certainly seems to be right with S&U. Over the past six years, the company’s earnings per share have more than doubled, rising at a compound annual growth rate of around 16% since 2014. The per share dividend has been increased by 100% since 2014. And it doesn’t look as if the firm is going to slow down any time soon.
Beating the market
In a trading update published today ahead of S&U’s half-year numbers, which will be released at the end of September, the company said: “In contrast with the current low levels of consumer confidence in the UK, demand for Advantage’s motor finance is healthy and transactions are ahead of last year.“
Customer numbers at Advantage, S&U’s motor finance business, are up 7% year-on-year according to the report, and the rest of the business is trading in line with expectations.
Commenting on the outlook for the market, S&U said that “despite a recent downturn in the new car market, the used car market remains robust and is likely to continue to do so, even assuming a no-deal Brexit.“
City analysts are currently expecting the company to report earnings per share growth around 7% this year, putting it on a forward P/E of 8.5. A full-year dividend of 124p is also expected to give a dividend yield of 5.9%.
Opportunity to buy
If S&U is not for you, then Tritax Big Box Reit (LSE: BBOX) could also offer market-beating returns. This real estate investment trust invests in logistics facilities around the UK, and business is booming.
According to its results for the six months ending 30 June, Big Box’s portfolio value has increased by nearly 13% since the end of 2018, and the contracted rent roll is up almost 4%. On the back of this growth, management has decided to increase the firm’s interim dividend by 2.2%.
This is just the latest in a string of dividend increases from the company. The distribution has grown at a compound annual rate of around 8% since 2014 as Big Box’s book value has quadrupled. After this growth, the dividend yield currently stands at 4.7%, with further increases likely as the firm continues to invest in its portfolio. Rent increases should also help push earnings and the dividend higher.
After a recent pullback, shares in Big Box are currently changing hands at a forward P/E of 21 and book value per share of just 1.1 — one of the lowest multiples placed on the stock for some time. I think investors should make the most of this opportunity and snap up shares in this leading industrial property owner today.
