Although inflation remains at 2.3%, the chances are it will rise in the coming months. The Bank of England is of that view, with it predicting a rate close to 3% over the medium term. Other forecasts indicate inflation could head higher than 3% in the coming years, as a weak pound drives the cost of imports higher. In such an environment, obtaining a real-terms yield could become more challenging. That’s why these two shares could be worth buying in April.
Results released by Premier Asset Management (LSE: PAM) on Tuesday showed it is making encouraging progress. The company’s assets under management increased to £5.5bn, with net inflows in the three months to 31 March 2017 being £170m. This meant that total net inflows in the rolling 12 months to 31 March were £667m, which shows that the company’s investment performance and marketing activities are working well.
In fact, Premier Asset Management has 95% of assets under management performing above the median over three years. Over a five-year period, 80% of its assets under management are in the first quartile, which shows that its performance remains strong.
With a dividend yield of 5.9%, Premier is one of the highest-yielding UK-listed shares at the present time. However, its dividends are due to rise by 41% next year, which puts it on a forward yield of 8.3%. With dividends due to be covered 1.4 times by profit in 2018, its shareholder payouts appear to be highly sustainable, which could lead to higher growth in future years. As such, now seems to be the perfect time to buy it.
Dividend growth potential
Premier is not the only financial services company with high dividend growth potential. Specialist asset manager Intermediate Capital (LSE: ICP) has a dividend coverage ratio of 1.9, which suggests growth in shareholder payouts could be high in future years. Therefore, while its dividend yield of 3.7% may be roughly in line with that of the wider index, it has significant scope to rise over the medium term.
Certainly, the asset management industry can be a relatively volatile place to invest. The performance of funds can disappoint and if the global economy endures a downturn, Intermediate Capital’s financial performance could be downgraded. However, with the company having recorded three consecutive years of rising earnings on a per share basis, it appears to have a sound business model and growth strategy.
With Intermediate’s shares trading on a price-to-earnings (P/E) ratio of 14, they seem to offer fair value at the present time. Given that inflation is forecast to rise and the company has such a high dividend coverage ratio, it would be unsurprising for investor demand for its shares to rise. This could provide capital gains and equate to index-beating total returns over the coming years.
Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.