Integrated shipping services provider Clarkson (LSE: CKN) has released a brief but encouraging update today with results for the 2016 year likely to be in line with expectations. Although Clarkson currently yields just 2.9%, it has significant dividend growth potential over the medium term. As such, it could prove to be a must-have income share in the coming years.
Clarkson’s earnings are expected to have fallen by 16% in 2016. This may sound like a relatively disappointing result at first glance and one that’s unlikely to lead to dividend growth. However, the company is expected to follow this up with growth of 9% next year. This should enable it to raise dividends and on this front the company has an excellent track record.
For example, over the last four years, dividends per share have risen by 12p. This equates to growth of 23.5%, or 5.4% per annum. This rate of growth has easily beaten inflation and looking ahead, Clarkson offers further real-terms growth in its shareholder payouts. Central to this will be the fact that the company’s dividends represent just 57% of profit. As such, there’s scope for shareholder payouts to increase at a higher rate than earnings in future years.
Clearly, Clarkson is highly dependent on the performance of the global economy. Demand for shipping services is relatively cyclical and so the company should benefit from an improving outlook for the world economy. Certainly, a new US president and Brexit present short term risks. However, the likely lower taxes and higher spending which are set to be undertaken by the former could lead to a higher growth rate. And Brexit could also mean that the UK becomes more nimble and better able to adapt to a changing world economy once it leaves the EU.
In addition, the emerging world continues to deliver rapid growth. China’s transition towards a consumer-focused economy is progressing at a relatively modest pace. It remains the workshop of the world and so demand for shipping services is likely to remain high over the medium term. This bodes well for Clarkson’s bottom line and could mean that it posts strong dividend growth in future years.
An income contender?
While Clarkson offers rapidly growing dividends, other more popular income stocks such as Vodafone (LSE: VOD) have high yields right now. For example, it yields 6% and its future dividend outlook is bright thanks to a bottom line which is expected to rise by 24% in the next year.
This should improve the company’s financial position and make its current dividend payments more affordable. And with a sound strategy which seeks to invest in infrastructure and provide a more diversified offering to customers, Vodafone is well placed to continue its double-digit growth rate in the coming years. As such, it offers superior income prospects to Clarkson, but the shipping services provider remains a sound income play for the long term.
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Peter Stephens owns shares of Vodafone. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.