3 bargain shares with rapidly growing dividends

While companies offering large dividends are understandably appealing for investors, it’s those that are rapidly increasing their bi-annual or quarterly payouts that interest me the most. After all, in sharp contrast to a stagnant payout, consistent hikes to the dividend suggest confidence on the part of management that a business is performing and will continue to do so.

With this in mind, let’s look at three companies that have all shown a recent willingness to increase the amounts of cash they are willing to return to investors.

Take a hike

Those who had the courage to invest in a UK housebuilder shortly after last year’s shock referendum result are likely to have enjoyed stellar returns since. Barratt Developments (LSE: BDEV) is one example of a company that would have rewarded them handsomely.

Since plummeting to 323p in early July 2016, shares in the Coalville-based business have climbed a very respectable 57%, underlining the fact that investing at a time when those around you are losing their heads can pay off.

Capital gains aside, what really interests me about Barratt is the fact that it increased its dividend by 21% last year. With dividends set to grow further and easily covered by earnings, a net cash position of around £195m at the end of last year and an encouraging trading update in January, I think its shares warrant further investigation. On a forecast price-to-earnings (P/E) ratio of only nine for 2018, Barratt appears to offer plenty of value for those willing to take on a degree of cyclical risk.

Appealing investment

£20bn cap insurer and fund manager, Aviva (LSE: AV) is another company that has been increasing dividends at a fair clip. Despite its admittedly wobbly earnings history over the last few years (leaving dividend cover looking rather precarious), things seem to be stabilising under the direction of CEO Mark Wilson — so much so that it saw fit to raise its payout by almost 15% in the last financial year. When hikes of 9% and 13% expected for this and the next financial year are combined with a valuation of just nine times earnings, the investment case for Aviva looks pretty compelling.

Specialist insurer and travel provider, Saga (LSE: SAGA) rounds things off. Although some may view the Folkestone-based company as a rather dull investment, last year’s 75% hike to the dividend tells a different story. Further increases of 17% in this financial year and 13% the year after would leave the shares yielding 4.5% and 5.1% in 2017 and 2018 respectively.

With a P/E of just 12 and a positive trading update last month, shares in the £2bn cap — like those of Barratts and Aviva — look good value. 

Don’t forget to diversify

Of course, nothing is guaranteed in investing. Just because the companies mentioned above have chosen to raise dividends by double-figures last year is not to say that they’ll always be able to do so, particularly if macroeconomic events cause businesses to re-evaluate their policies. Given that we are likely to see the triggering of Article 50 soon, the chances of the former happening are certainly far from negligible. 

That’s why it’s more important than ever for investors to take sufficient precautions with their portfolios, ensuring that — in addition to investing in companies from a broad range of sectors — their holdings match up with their tolerance for risk, investing horizons and financial goals. 

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Paul Summers has no position in any shares mentioned. 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.