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Two hot dividend stocks I’d buy today

I’ve said it before, but I reckon it’s usually better to buy shares of investment management companies than hand over your cash to them to manage — you want to be earning a portion of their fees, not paying them, don’t you?

Polar Capital Holdings (LSE: POLR) is one I like the look of as it’s been handing out healthy dividends for years. The dividend has actually been held flat at 25p for a few years as earnings have slipped a little, but it still amounted to a 6.9% yield for the year to March 2016.

And this year we saw the expected 25p again, for a yield of 5.8% on today’s share price of 430p. The shares had been in a bit of a slump for a few years, but have put on a healthy 74% since a low in June last year, producing the reduced yield.

What seems to be behind the recent positive share price performance is the mooted return to earnings growth on the analysts’ cards starting next year — the City folk are predicting a 27% boost in EPS in 2018, followed by a further 30% the year after, and Thursday’s results lend some support to that.

Assets growing nicely

Adjusted earnings per share came in ahead of the year’s expectations at 20.4p, down just 7% over last year, after pre-tax profit declined by 14% to £20.4m. And with assets under management up 11.5% to $11.6bn (in sterling the rise was bigger, but that’s just currency exchange movements), and the firm’s new UK Value Opportunities UCITS fund launched in January already sitting on assets of more than £256m, it does look like investors are flocking to Polar’s offerings.

The expected growth resurgence should also see the dividend picking up again, with a rise to 27.5p (6.4%) on the cards for 2019. With a forward P/E by then of 13, Polar Capital looks attractive.

Steady or erratic?

Steady year-on-year EPS rises aren’t always necessary for solid dividend income. Earnings from Numis Corporation (LSE:NUM) have been a bit up and down over the past few years, but its dividends have been steady and rising.

It’s the nature of the company that does it, as Numis is a company stockbroker specialising in small and mid-cap companies seeking to raise funds — so it will have fatter years when there are more IPO and equity issues, and leaner years when there are fewer.

But having said that, the dividend has actually been reasonably well covered by annual earnings over the past few years — apart from 2012 when it was only 80% covered, but that quickly reversed to more than twice covered a year later. The share price has been on a bit of a roller coaster, though flat overall over the past couple of years, but dividend rises are steadily beating inflation.

Long-term cash

Last year’s 12p payment provided a yield of 5.5%, and was 4% up on 2015’s dividend (which in turn had been hiked by 10% from the year before). And though analysts are predicting an uncharacteristically flat dividend this year with the same 12p pencilled-in (for a 4.9% yield on a slightly higher share price), they’re expecting a further 4% boost in 2018.

Earnings were down at the halfway stage, but the second half has apparently “started very well with the completion of 10 fund raises generating fees of over £10m.

I’m seeing a solid long-term cash cow here.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended Polar Capital Holdings. 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.