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A ‘secret’ dividend stock I’d buy alongside Royal Dutch Shell plc’s 6% yield

Whether to go for growth shares or dividend shares is largely academic in my view — if you can find a successful company, however it delivers the cash, it’s still cash.

Having said that, I reckon a few high-yielding blue-chip stocks can make a great portfolio cornerstone, and one that has consistently produced the goods is Royal Dutch Shell (LSE: RDSB).

Despite earnings crashing during the oil price crisis, Shell has kept its dividend going at a steady 188 cents per share. That’s around 142p, and with the shares at 2,372p it would yield a little over 6% this year and next.

The big question has been whether the oil giant would continue handing over these levels of cash while earnings had been dwindling — at the lowest point, in 2015, earnings per share (EPS) only covered 16% of the year’s dividend.

On the mend

That’s since improved, and we have a couple of years of impressive EPS growth pencilled in for this year and next, but even by December 2018 we’d only see the dividend barely covered by earnings.

But I think the time for worrying about dividend safety has passed, with Shell having easily had enough cash to keep it going through the hard times — if we were going to see a cut, surely it would have happened when earnings were at a low rather than now when they’re coming back.

Cash flow at the interim stage soared by 600%, and Shell is now looking like a much leaner operation after having offloaded a chunk of non-core assets — and its acquisition and integration of BG Group seems to have gone smoothly.

Shell has always been a great long-term investment, and I reckon it still is.

Progressive dividends

The other side of the dividend coin to big yields is progressive ones — even a low yield today can be very attractive when there are prospects of the annual cash payout growing faster than inflation every year. And that’s what I’m seeing at Numis Corporation (LSE: NUM).

Numis is a broker and has been doing well by focusing on small and mid-cap clients, and that’s led to an impressive rise in EPS over the past few years — from 6.4p in 2012, it rocketed to 23.5p by September 2016.

The share price has risen along with earnings, putting on 175% over the past five years to reach 308p, though with EPS being so strong we’re still looking at forward P/E multiples of only around 12-14.

The cash

But the big attraction for me is the dividend, which has been wiping the floor with inflation — from 8p in 2012 it climbed to 12p in 2016, with forward yields now standing at around 4%. And what’s nice is that the company offers a dividend reinvestment plan, so you can take additional shares instead of the cash each year.

An update earlier this month told us that “second-half trading performance was very strong” with revenues up 47% over the first half, which should lead to an overall 15% increase in full-year revenue. With the firm telling us that profit should show similar levels of growth, I’m happy with the dividend prospects for this year too.

The broker business can be variable and revenue doesn’t always fit neatly into the annual reporting period, so investors should probably expect some down years. But I think I’m seeing a solid long-term dividend prospect here.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended Royal Dutch Shell. 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.