2 fat dividend growth stocks you can’t afford to ignore

These companies are set to grow their dividends by more than 50% over the next two years.

| 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.

You might not have heard of Impax Asset Management (LSE: IPX) and Premier Asset Management (LSE: PAM), but if you’re on the lookout for the market’s best dividend stocks, I believe these businesses certainly deserve your attention.

Both manage money for clients (as their names suggest) and they are both reasonably good at it judging by their performance figures.

Outperforming the market 

Today, Premier reported it received £175m of client assets for the three months to the end of 31 March, taking total net inflows for the six months to £411m. For the rolling 12-month period to the end of March, inflows totalled £847m. 

It seems investors are attracted to the firm’s funds thanks to management’s ability to pick stocks. Indeed, over the five years to the end of March, 97% of assets managed by Premier (excluding absolute return funds, investment trusts and segregated mandates) outperformed the median return of similar funds in the same sector. 

Following this robust performance it looks as if Premier is well on the way to hitting City forecasts for 2018. Analysts have pencilled in earnings per share growth of 70% for 2018, and a further increase of 21% is expected for 2019, leaving the group trading at a forward P/E of 12.3. 

But it’s the City’s dividend expectations for the company that really get me excited. Analysts are expecting Premier to distribute a total of 10.4p per share to investors this year, up 31% year-on-year and giving a dividend yield of 4.4%. The payout is expected to grow by a further 21% for 2019. 

So, if you are looking for a cheap, fast-growing company, with dividend aristocrat qualities, you shouldn’t overlook Premier (there’s also £18m of net cash on the balance sheet to support the payout.) 

Future dividend star

Impax Asset Management also published an upbeat update on its asset flows this morning. According to CEO Ian Simm, “In the first half of this financial year we have received over £1bn of new money, and our new business pipeline remains encouraging.” These new funds include the addition of the Pax World Management acquisition, which closed in January. On January 1, total firm assets under management amounted to £8.2bn. 

And just like Premier, analysts believe that if Impax can keep up its rate of client acquisition, then earnings are set to surge over the next two years as it benefits from economies of scale. 

Specifically, analysts are expecting earnings to jump 60% in 2018, supporting an increase in the full-year dividend payout of 24%. If the company does hit this target it will have increased its dividend by 380% since 2012 and earnings per share will have grown by a similar amount since 2013. 

Analysts are also forecasting dividend growth of 25% for 2019 which, if it materialises, will mean that the distribution has grown by 31% per annum since 2012. 

With this being the case, while the current dividend yield of 2.2% might not seem like much, if you bought shares in Impax today, according to my figures, by 2021 the yield on cost will be 4.8%.

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 owns no share 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

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 »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

2 FTSE income stocks investors should consider buying in April

Income stocks are a great way to build wealth. Our writer details two picks she believes investors should consider snapping…

Read more »

Investing Articles

What might the 5-year price chart tell us about BT shares?

Christopher Ruane considers what clues the long-term performance of BT shares might offer him about business performance and whether to…

Read more »