With inflation rising to 2.7% in August, dividend shares could become increasingly attractive to investors. Fortunately, the FTSE 100 contains a number of companies which could offer higher income returns than a cash ISA. In fact, the index itself offers a dividend yield of around 4%, which is significantly higher than the rates which can be achieved on a cash ISA.
While Barclays (LSE: BARC) may not appear to be a strong income stock owing to its low dividend last year, a rise in shareholder payouts is expected in the next couple of years. As a result, it may be worth buying alongside another income share which reported robust performance on Wednesday.
The company in question is pub operator Marston’s (LSE: MARS). The company’s trading update for the financial year to 29 September 2018 highlighted its strong performance despite weak consumer confidence. Turnover increased by 15% to over £1.1bn, while total pub sales increased by 3.2%. Like-for-like (LFL) sales growth was 0.6%, and it was up by 1.6% in the last 10 weeks.
The company anticipates that it will report underlying profit before tax of around £104m, which is up on the previous year’s figure of £100.1m. It was a strong year for its Taverns and Beer businesses, with its balanced portfolio helping to maximise the trading opportunities presented by the World Cup and good summer weather.
Looking ahead, Marston’s expects to see further progress from its dining pubs in the 2019 financial year. It is forecast to grow its net profit by around 4%, which could help to support its 7.7% dividend yield. Since dividends are covered almost twice by profit, its income investing potential appears to be appealing.
As mentioned, Barclays is expected to report a rise in dividends over the next couple of years. The restructuring which has taken place under its current CEO seems to have created a stronger business which is better able to distribute capital to shareholders.
As a result of this, the company’s dividends per share are forecast to rise at an annualised rate of 63% in the next two financial years. This puts the company’s shares on a forward dividend yield of around 4.6%. And, since dividends are due to be covered 2.9 times by profit in 2019, there seems to be scope for them to move higher at a faster pace than profit growth over the medium term.
Of course, the banking sector continues to face risks. Brexit and the potential for a full-scale trade war could hold back investor sentiment to some degree. But with Barclays forecast to post a rise in earnings of 12% next year, its financial outlook seems to be improving. Alongside the operational performance which is being delivered under its current strategy, this could make the stock appealing for the long run. Over time, it could become an increasingly enticing dividend share which helps investors to overcome the threat of higher inflation.
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Peter Stephens owns shares of Barclays. The Motley Fool UK has recommended Barclays. 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.