These 2 stocks just raised their dividends

Edward Sheldon looks at two stocks that have recently rewarded shareholders with an increased dividend payout.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Is there an easier way to build wealth than a dividend growth strategy? As companies increase their dividend payouts over time, their share prices generally rise as a result of the increased payouts. This means that investors can enjoy both an increased level of income and capital gains, with minimal effort.
 
With that in mind, here’s a look at two stocks that have recently raised their dividends.  

Pennon Group

Pennon Group (LSE: PNN) released its full year results in late May. While revenue was flat, EBITDA increased 8.4% to £486m and profit before tax rose a healthy 18.3% to £250m. Importantly for dividend investors, the company lifted its dividend payout from 33.58p last year to 35.96p this year, an increase of a robust 7.1%.
 
Pennon has an impressive dividend growth history, having increased its dividend from 26.52p five years ago to 35.96p for FY2017, a compound annual growth rate (CAGR) of 6.3%. And it looks like this level of growth should continue in the medium term, with the company saying: “We believe Pennon is well positioned now and for the future and our performance underpins our long established sector-leading 10-year dividend policy of 4% growth per annum above RPI inflation out to 2020.” 
 
While the company’s dividend yield of 4.1% looks attractive, investors should note that dividend coverage has been thin recently, with coverage averaging just 1.25 times over the last three years. Furthermore, on a forward looking P/E ratio of 20 times FY2018 forecast earnings, Pennon looks a little expensive right now given the lack of revenue growth generated in recent years.  

ITV 

Also increasing its dividend recently was ITV (LSE: ITV), announcing back in March that its full-year dividend would be increased to 7.2p, a 20% increase on last year. Furthermore, the board also rewarded shareholders with a special dividend of 5p, taking the total payout for the year to a huge 12.2p.
 
ITV has been a fantastic dividend growth stock in recent years, with the company increasing its dividend from 1.6p in FY2011 to 7.2p last year, a CAGR of 35%. The firm has said that it is committed to a “long-term sustainable dividend policy” and that the ordinary dividend will “grow broadly in line with earnings.” City analysts expect dividend growth of 17% and 4% for the next two years.
 
The market clearly has some concerns that political and economic uncertainty could drag down advertising revenues, and the share price has fallen 20% in the last two months as a result. However dividends and dividend growth rates give a powerful insight into a company’s financial health, and you have to wonder whether ITV would lift its dividend by an impressive 20% and make a special payment if it thought there was significant trouble ahead. The company stated in March that it has the “flexibility and capacity to continue to invest across the business and deliver sustainable returns to our shareholders.”
 
The share price fall has pushed the yield above 4%, and on forecast earnings of 15.9p for FY2017, the stock trades on a P/E of just 11.2 right now. At that valuation, I believe ITV is starting to look interesting.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has recommended ITV. 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.

More on Investing Articles

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »