My idea of the perfect dividend isn’t necessarily one that offers a very high yield today (though there are some great high yields around right now). No, I think a long-term progressive dividend with a lower yield can provide better rewards, often with a good bit more safety thrown as they tend to be accompanied by strong cover by earnings.
That’s what I see from Britvic (LSE: BVIC) which, on Wednesday, reported a 4.8% rise in first-half pre-tax profit and a 5.2% gain in adjusted earnings per share. That allowed the soft drinks producer to hike its interim dividend by 5.1%.
The company seems to be on track to meet forecasts for a full-year dividend rise of around 5.5%, with chief executive Simon Litherland telling us: “I remain confident that we will achieve full-year market expectations.”
That would be continuing the strong trend of recent years — growing well ahead of inflation, Britvic’s dividend jumped by 35% in the four years from 2014 to 2018.
Yields have been on the low side of average, with this year’s predictions suggesting 3.1%. But anyone who bought the shares at the end of 2014 could be pocketing an effective yield this year of 4.5% — and they’d have enjoyed a 40% share price gain into the bargain.
Interestingly, the soft drinks levy is actually helping Britvic, as Litherland explains it has been “accelerating the consumer trend towards our heartland of low and no sugar brands.”
The shares are priced a little ahead of the market average, on forward P/E multiples of 16.3 for this year and 15.3 next, but I think that’s fair value for a potentially very-long-term dividend stream.
I still do like a nice big yield too, and the UK’s housebuilders are offering lots of cash these days. Bovis Homes Group (LSE: BVS) is among the FTSE 250‘s biggest payers right now, with massive forecast yields close to 10%.
That includes special dividends, so yields that high won’t be here forever. But with the company currently refocusing on quality and boosting customer satisfaction rather than simple volume growth, I reckon ordinary dividends should provide a healthy income stream on their own.
The 2018 ordinary dividend of 57p per share represented a 6.6% yield on the year-end share price. And though the shares have picked up since, if it’s repeated this year we’d still be looking at an ordinary yield of 5.5% on today’s share price.
The firm’s new focus is paying off, at least according to its first-quarter update. Chief executive Greg Fitzgerald said he is “delighted to see the transformation in the way we operate reflected in our high build quality and continued strong improvements in customer satisfaction.”
Importantly, sales seem to be going well too, with Fitzgerald also speaking of “a strong period of trading including a step up in our sales rate.” The company’s average private sales rate per site per week is up 17% on the same period a year ago.
Bovis shares are trading on forward P/E ratios of under 10. I think that’s too cheap, especially as I’m becoming increasingly convinced that a feared Brext-led house price slump isn’t going to happen.
Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Britvic. 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.