Finding reliable dividend shares that also deliver meaningful growth is no easy task. Often, investors must choose between steady income or capital appreciation — not both. That’s because the dividend yield generally moves inversely to the share price. As a company’s stock climbs, the yield naturally compresses, — unless dividend payouts also rise.
That’s why I was surprised to find that two of my favourite dividend stocks are up more than 30% this year while still offering generous yields. These are specialist mortgage lender OSB Group (LSE: OSB) and insurance giant Aviva (LSE: AV.). Each brings something different to the table, making them both worth considering.
Let’s take a closer look.
OSB Group
OSB Group’s a specialist lender focused on niches of the mortgage market often underserved by larger banks. Through subsidiaries such as Precise Mortgages and InterBay Commercial, it targets buy-to-let landlords, commercial property and self-employed borrowers. This strategy’s proven resilient, with the share price up 31% year-to-date.
However, specialist lenders come with risks. A rather strained balance sheet shows debt of £4bn, nearly double its equity. While such leverage is typical in this sector, it does introduce risk — particularly if property prices fall or bad loans spike. Its free cash flow of £270m also looks modest relative to liabilities.
But for dividend hunters, the numbers are compelling. It offers a 6.4% dividend yield, comfortably covered by a payout ratio of just 43.3%. Even better, it’s grown its dividend for five consecutive years at an average annual rate of 5%. And despite the recent share price gains, OSB still looks attractively valued, trading at a price-to-earnings growth (PEG) ratio of just 0.42 and a price-to-cash flow multiple of 6.6.
All in all, I see it as a solid potential pick for both growth and income, with the caveat that its specialist lending model could be vulnerable in a downturn.
Aviva
Turning to Aviva, this well-known insurer needs little introduction. As one of the UK’s largest composite insurers, it offers everything from life cover to general insurance and pensions. Its share price has surged 32% this year, reflecting improved investor sentiment across the financial sector.
However, growth has slowed. In fact, earnings have contracted 38% year-on-year, a reminder of the pressures facing UK insurers from intense competition to higher claims costs. Nonetheless, Aviva’s balance sheet’s healthy, with a debt-to-equity ratio of 0.95 and operating cash flow of £8.12bn, providing confidence that it can continue meeting obligations and paying dividends.
Valuation is less of a bargain. The shares trade at a price-to-earnings (P/E) ratio of 26.5 and a price-to-book (P/B) ratio of 2.16, both above long-run averages for insurers.
And while the dividend yield remains attractive at 5.8%, the payout ratio sits at a lofty 152%. That means Aviva’s returning more to shareholders than it’s currently earning (though this is partly due to timing differences in insurance profits and cash flows).
Notably, dividends have grown steadily for the past five years at nearly 7% per annum.
In short, while OSB may offer more obvious growth potential, Aviva provides steady, defensive income. For me, both look worth considering as part of a well-diversified portfolio aimed at blending income with the possibility of long-term capital growth.
