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A FTSE 100 dividend growth stock that I’d always buy over 6%-yielding Lloyds Banking Group

I’m not fussed by the dividend yields over at Lloyds Banking Group (LSE: LLOY). And I’m delighted to see that neither is the broader investment market.

City analysts remain convinced that the Black Horse Bank will keep its ultra-progressive dividend policy rolling through to the close of next year at least. They prophesise a 3.3p per share total payment for this year, up from 3.05p in 2017, and a 3.5p reward next year.

Subsequent yields of 5.8% for 2018 and 6.2% for 2019 aren’t tempting me to invest, though. I’m not convinced that Lloyds will have the confidence to keep raising the dividend at a rate of knots beyond the current year given its rapidly-deteriorating trading environment.

The number crunchers have been downgrading their profits projections through to the close of 2019 and, with the Brexit episode sapping the momentum of the UK economy, they now anticipate that earnings will actually duck fractionally next year.

Rising pessimism towards Lloyds is reflected in its share price contracting by almost a fifth since the turn of the calendar year. And its share price hit its cheapest since autumn 2016 in Friday trading as the chances of a no-deal Brexit have grown.

A better bet

Yields at InterContinental Hotels Group (LSE: IHG) fall well short of those currently on offer at Lloyds.

But to my mind, the hotelier is in much better shape to keep lifting the dividend in the medium term and beyond, even if trading details released late last week caused investors to sell out. The FTSE 100 firm is now dealing at its cheapest for more than a year, just above the £40 per share marker.

InterContinental Hotels declared that revenues per available room (or RevPAR) edged just 1% higher in the July to September quarter, down from growth of 3.7% printed in the first half. And in its core US territory, RevPAR actually slipped by half a percentage point.

While disappointing, the result needs to be seen in the context of strong comparables a year previously. As InterContinental noted, third-quarter performance across the Atlantic was “impacted by strong prior year demand from the 2017 hurricanes.”

All things considered, the third quarter was another fruitful period. Sure, RevPAR in The Americas may have flatlined, but in its EMEAA (Europe, Middle East, Asia & Africa) region, these grew 2.5%, thanks to strong growth in France and Russia in particular, and in Greater China they rose 4.8% year-on-year.

Special dividend surprise

Strong trading and a robust balance sheet also encouraged InterContinental to announce on Friday that it plans to shell out a $500m special dividend with share consolidation. This supplementary reward is slated to be delivered in the early part of 2019.

Yields at the business stood at 2.3% for this year thanks to an anticipated 91p per share dividend, and 2.5% for 2019 due to the predicted 101p reward, but clearly analysts will be required to mark up their medium-term targets following last week’s announcement.

Those targets may still lag those of Lloyds by some distance, but given InterContinental’s far superior earnings picture in the current year and beyond — the number crunchers estimate profits rises of 21% and 7% in 2018 and 2019 respectively — I’d bet my bottom dollar than the latter will lift dividends at a robust rate much longer than its FTSE 100 colleague will.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended InterContinental Hotels Group and 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.