There are some real hidden gems among the smaller companies on London’s stock exchange. One such company has an extraordinary record of increasing its dividend for over seven decades and can rightly be described as a ‘blue chip’ of the FTSE SmallCap index.
The company in question released its half-year results today. I believe it’s an attractive buy for long-term investors and I’d also like to highlight a FTSE 100 dividend star that I reckon has huge appeal right now.
Brewer and pubs group Fuller, Smith & Turner (LSE: FSTA) is the small-cap with the blue chip dividend record.
The company today reported an 11% rise in revenue for its half year to 24 September. Profit increased 6% and the board lifted the interim dividend by 5%.
The managed pubs and hotels division (responsible for getting on for two-thirds of profits) is thriving, but the tenanted division saw a 1% fall in operating profit. However, management has plans to get this division back into profit growth and has earmarked 18 sites for sale. The group’s brewery business saw beer and cider volumes decrease by 4%, but operating profit rose by 8% with craft beers performing strongly.
Founded in 1845 and still family controlled, Fullers invests in the business with a long-term perspective and has a strong balance sheet, backed by around £500m of property. I’ve no doubt the company will deal with the current challenges of higher business rates, the National Living Wage and Brexit (as well as potentially benefitting from more inbound tourists and ‘staycationers’). But it’s the way that the business is run for the long term — reflected in the tremendous dividend record — that’s the big appeal.
I’m anticipating a 19p dividend for the full year, which would be covered 3.2 times by analysts’ forecast earnings of 61p. At a current share price of 980p, the price-to-earnings (P/E) ratio is 16.1 and the dividend yield is 1.9%. I believe this represents excellent value for long-term investors, but if you’re in need of a higher immediate income, there’s a FTSE 100 company that could fit the bill nicely.
Blue chip blockbuster
Tobacco group Imperial Brands (LSE: IMB) posted its annual results last week for its financial year ended 30 September. The company reported a 9% rise in revenue and a 12% rise in earnings. The board increased the dividend by 10% for the eighth consecutive year and it has a “commitment to deliver dividend growth of at least 10% next year and over the medium term.”
The tobacco industry faces challenges from regulation and increased health awareness, but these are also disincentives to new entrants. The big incumbents should have many years ahead of generating huge quantities of cash from traditional and next-generation products, and Imperial looks particularly attractive value right now.
A 10% increase in the dividend for the coming year would take the payout to 171p, covered 1.6 times by analysts’ forecast earnings of 276p. At a current share price of 3,470p, Imperial’s P/E is an undemanding 12.6, while the higher dividend payout ratio than that of Fullers gives a smokin’ hot yield of 4.9%.
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G A Chester has no position in any shares mentioned. The Motley Fool UK has recommended Imperial Brands. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.