Two 5.5%+ dividends that could jump-start your returns

Can you afford to ignore these income stars?

| 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.

Leading property, residential, construction and services group Kier (LSE: KIE), has hardly been the best stock to own over the past five years. Indeed, since summer 2012 shares in the company have returned a lousy 2.6% excluding dividends.

However, if you include dividends, the company’s returns light up. Since summer 2012, the shares have returned around 23% including those payouts. This performance highlights the power of dividends, and with a yield of 5.5% at the time of writing, it looks as if Kier will continue to be an income champion for some time to come.

On-track 

City analysts are expecting it to report earnings per share of 107p for the fiscal year ending 30 June, and according to a trading update from the company today, the group is on track to hit this target. Today’s pre-close trading statement also proclaims that Kier is making real progress reinvesting in its operations and trying to increase value for shareholders. Net debt is expected to be £150m at the end of the year, and the lower end of market forecasts and cash generated of £69m during the year is projected to be reinvested in property and residential divisions. These two groups made a return on capital employed of more than 10% during the fiscal year making them by far the most profitable of the entire group.

Management’s efforts to reduce debt and reinvest in the most lucrative business divisions should underpin further dividend growth. City analysts have pencilled-in earnings per share growth of 11% for the fiscal year ending 30 June 2018, and off the back of this growth, a dividend increase of 4.6% is expected. 

If the company hits this forecast, the shares should yield 5.8% next year based on current prices. For value hunters, this income comes cheap as the shares currently trade at a forward P/E of 11.4, falling to 10.2 for next year.

Market-beating yield 

Along with Kier, Redde (LSE: REDD) is another income champion you should consider for your portfolio.

the insurance services company has chalked up much better long-term returns than Kier, even without dividends. Over the past five years, shares in the company have returned nearly 1,500%. Including dividends, the return is closer to 1,700%.

Unfortunately, in the near term, further share price gains may be capped as shares in Redde currently look expensive trading at a forward P/E of 15.7. Still, for yield hunters, the stock looks attractive as it currently supports a dividend yield of 6.4%. Analysts have pencilled-in payout growth around 5% for the fiscal year ending 30 June 2018, giving an estimated dividend yield of 6.7%. 

This payout is only just covered by earnings per share, but on a cash basis, it looks secure. During the first half, the firm generated just over £22m in cash from operations but the dividend cost only £15m, giving plenty of headroom for further payout growth.

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.

Rupert Hargreaves 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.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

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 »