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2 dividend knockouts I’d always buy over Lloyds Banking Group plc

Financial colossus Lloyds Banking Group plc (LSE: LLOY) remains a risk too far for investors, in my opinion, in spite of City brokers’ expectations of market-beating dividends this year and beyond.

In 2017 the bank is predicted to pay a 3.9p per share reward, and to follow this up with a 4.4p dividend next year. As a consequence Lloyds sports colossal yields of 5.8% and 6.6% for 2017 and 2018 respectively.

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Still, the prospect of slowing revenues growth and a hefty rise in bad loans in the months ahead looms large over the company, as does the prospect of further hefty rises in misconduct-related charges — Lloyds had to set aside another £1bn for the second quarter to largely cover the cost of the ongoing PPI saga.

Instead, those seeking abundant dividend flows need to check out the two stocks stars I have outlined below.

Sausage star

Food giant Devro (LSE: DVO) is one income hero I expect to deliver titanic returns.

Although earnings are expected to rise only marginally in 2017, the City still expects the Glasgow business to get its progressive dividend policy back on track after four successive years of paying 8.8p per share. A 9.2p reward is forecast for the year, resulting in a sturdy 4% yield.

And the good news does not end here, a forecasted 14% earnings improvement in 2018 predicted to nudge the dividend to 9.3p. As a result Devro’s yield rises to a mighty 4.1%.

The sausage-casings maker’s share price sprang to nine-month peaks this week after the firm announced an 11% revenues rise during January-June, to £125.2m. The fizzing top line helped drive underlying EBITDA 17% higher to £30.8m.

Devro noted that “volume growth [was] particularly strong in China, South East Asia and Russia,” a factor which helped group volumes rise 7% from the corresponding 2016 period. And the business is primed to launch a raft of new products during the second half to keep sales on an upward slant.

Looking further down the line, the company’s Devro 100 programme — designed to boost sales performance, manufacturing processes and product ranges — should lay the base for sterling revenues expansion in the years ahead. With the plan also set to keep driving costs lower, I reckon investors can look forward to plump earnings, and thus dividend, growth in the years ahead.

Value heavyweight

Bonmarche Holdings (LSE: BON) was another London-quoted dividend beauty throwing out terrific trading news in recent days.

The clothing giant announced last week that total like-for-like sales popped 6.8% higher during the 13 weeks to July 1. Underlying sales at its stores rose 4.2%, but its online operations really grabbed the spotlight — like-for-like revenues here exploded 39% from a year earlier.

While conditions are likely to remain difficult on the high street as rampant inflation squeezes shoppers’ spending power, I am confident Bonmarche’s focus on the value end of the market should allow it to thrive in such an environment.

My optimism is backed up by the number crunchers, who expect earnings to rise 3% in the year to March 2017 before revving up thereafter. A 23% advance is chalked in for fiscal 2019.

And these forecasts are expected to keep dividends on the right side of generous. An anticipated 7.2p per share dividend for this year yields a staggering 7.9%, while the 7.3p payment estimated for next year drives the yield to 8%.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Devro. The Motley Fool UK has recommended Lloyds Banking Group. 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.

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