There’s the name of a savings account in the investment world that always make me cringe — Cash ISA.
The best easy access interest rates I can find today come in at just 1.45%, which isn’t even enough to keep up with inflation and just guarantees you’ll lose money in real terms. That’s not an investment, it’s a money pit.
As an alternative, I’m always on the lookout for good dividend stocks, suitable for stashing in a Stocks & Shares ISA (which is a very good thing) and leaving there for decades.
I think Close Brothers Group (LSE: CBG) fits the bill, and it’s just released full-year results Tuesday. The banking and investment specialist recorded a modest 2% drop in adjusted operating profit to £264.7m, with adjusted EPS down by the same sliver to 136.7p — which I think is decent in the current economic climate.
But longer-term measures are more important to me. And on that score, the firm has seen its loan book grow by 5.7% to £7.6bn (with a bad debt ratio stable at just 0.6%), and the total value of its client assets is up 9% to £13.3bn. We also see improvements in two key liquidity measures, with a CET1 ratio up from 12.7% to 13%, and a total capital ratio at 15.2%, from 15%. Both of those figures are healthy.
The only news that saddens me a little is that chief executive Preben Prebensen has decided to step down in 12 months time, but I’m confident the company will find someone to take the job who follows the same prudent management style.
Oh, I almost forgot, the dividend. It’s been lifted by 5% to 66p per share, yielding 4.9%. While not the biggest around, it’s nicely above the market average. And, more importantly, it’s twice covered by earnings and is strongly progressive. That 5% hike continues the company’s track record of lifting its dividend well above inflation each year.
My second pick might sound like a strange one, as it’s a company whose share price has tumbled 65% over the past 12 months and whose dividend yielded was only 1.8% in 2018.
It’s CYBG (LSE: CYBG) I’m talking about, the challenger bank formed from the merger of Clydesdale and Yorkshire Bank and which bought up the Virgin Money brand last year, and has been hit by the late rush of PPI claimants.
Following the deadline for claims, the bank told us it’s having to set aside a further provision of £300m-£450m due to the unprecedented volume seen by the sector in the final weeks.
That’s put an end to hopes of a big dividend, at least for the current year. And it’s helped push the shares down to a forward P/E of only a fraction over five, which is even lower than the value of the beleaguered Lloyds Bank.
Analysts are now predicting a yield of only around 2% this year, so why do I think that’s good? Well, the PPI setback is just going to delay the onset of progressive dividends by a year or so, and there’s a big rise to a 3.5% yield on the cards for 2020. Even that would be covered more than five times by forecast earnings. So I think it’s setting the scene for a top future dividend stock.
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Alan Oscroft owns shares of Lloyds Banking Group. The Motley Fool UK has recommended 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.