The Motley Fool

Is this 4.3% yielder one of the hottest dividend stocks around?

With the threat of inflation ahead, higher-yielding shares could become increasingly popular during the course of 2017. Reporting today is a company that currently yields 4.3%, which is expected to be well above the 3% inflation rate forecast by the Bank of England in 2017. But is a high yield enough, and does this company pack enough punch when it comes to dividend growth over the medium term?

Upbeat results

The company in question is clay brick and concrete products manufacturer Ibstock (LSE: IBST). It released results today which showed that it’s trading as anticipated with adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) in line with expectations. Revenue from clay and concrete products in the UK represents 80% of sales, so its 2% rise in the 2016 financial year was somewhat disappointing. It reflects low-single-digit volume growth for clay bricks and further volume and price growth in the concrete business.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Sales in the US benefitted from a weaker pound and rose by 18%. This reflects a higher average price and the benefits of a more favourable product. Looking ahead, there’s more potential for an uplift from weak sterling, since the prospect of a hard Brexit seems to be increasing. Similarly, with demand exceeding supply in the UK property market, Ibstock’s UK operations could enjoy a relatively upbeat medium-term outlook.

Dividend potential

As mentioned, Ibstock currently yields 4.3%. This is higher than the FTSE 100’s yield of 3.6% and with dividends being covered 2.2 times by profit there’s scope for them to rise at a faster pace than earnings. Since the company’s bottom line is expected to increase by 5% this year and by a further 8% next year, there’s scope for its dividend growth rate to easily beat inflation. As such, it appears to offer excellent income potential, especially while its shares trade on a price-to-earnings (P/E) ratio of just 10.5.

A more stable option

Of course, demand for bricks and concrete is relatively cyclical. Therefore, it may be prudent for income seekers who wish to beat higher inflation this year to focus on a more stable and consistent business. One example is Vodafone (LSE: VOD). It currently yields 5.9% and is expected to grow its bottom line by 15% in the current year and by a further 24% next year. This should provide additional cover for its dividend and mean that the potential for an increase grows over the medium term.

In addition, Vodafone’s business model is relatively defensive. Although it’s diversifying into new products such as broadband, it remains a consistent performer as the provision of mobile plans, pay-TV and similar services has historically been something of a quasi-utility. As such, while Ibstock has appeal as an income stock, Vodafone could prove to be more consistent and reliable performer. Alongside its higher yield and stronger earnings outlook, it seems to be the better buy.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US $12.3 TRILLION out of thin air…

And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...

It’s just ONE innovation from a little-known US company that has quietly spent years preparing for this exact moment…

But you need to get in before the crowd catches onto this ‘sleeping giant’.

Click here to learn more.

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.

Our 6 'Best Buys Now' Shares

The renowned 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 enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.