Im a huge fan of dividend growth investing as its an investment strategy that really allows you to put the power of compounding to work. With that in mind, here are three companies Im tipping to increase their dividend payouts in 2017.
Legal & General Group
Insurance giant Legal & General Group (LSE: LGEN) currently sports one of the more sizeable yields in the FTSE 100 after paying out a generous 13.4p per share in dividends for FY2015. While this 5.6% dividend yield is approaching a level atwhich some investors may start to question its sustainability, Im not fazed and Im backing the insurer to increase its dividend in 2017.
The dividend coverage ratio is a useful onewhen it comes to assessing dividend sustainability. This ratio is calculated by dividing earnings per share by dividends per share and investors see a level of above 1.5 as being healthy. Legal & Generals coverage ratio currently stands at 1.39,which is a little on the low side, but certainly not a level to panic about.
Legal & General has boosted its dividend payouts by 19%, 21% and 22% over the last three financial years and city analysts expect the dividend growth to continue in FY2016, with a 7% rise forecast. While a hike of 7% may not be as prolific as the recent increases, its still a level comfortably above inflation and a nice little boost to your dividend cheque.
The stock is a favourite of prominent fund manager Neil Woodford, and with the valuation looking very reasonable on a forward looking P/E ratio of just 11.4, Legal & General looks to be a solid dividend growth stock for 2017 in my opinion.
DS Smith
DS Smiths (LSE: SMDS) yield of 3.15% may not be the largestin the FTSE 100, but its well-covered and the companys recent dividend growth is impressive with increases of 12%, 14% and 25% over the last three financial years. City analysts have pencilled-in dividend growth of 10% for FY2017, meaning that the forward-looking yield now stands at a healthy 3.5%.
Recent half-year results were strong, with the company reporting revenue growth of 21% and an adjusted operating profit increase of 23%, or 9% at constant currency. Yet thestock can be bought on an undemanding P/E ratio of just 12.9 times next years forecast earnings and for this reason, I believe DS Smith offers the potential for capital growth and dividend growth in 2017.
Imperial Brands
Lastly, I reckon tobacco giant Imperial Brands (LSE: IMB) is a standout dividend growth stock at its current share price and Im confident the company will lift its dividend payout in 2017.Imperial has increased its dividend by 10% for an impressive eight consecutive years and recently stated in its FY2016 results that it remains committed to this level of increase over the medium term.
A 15% share price correction since mid-August provides an attractive entry point in my opinion, as the companys yield has increased from 3.7% back in August to a healthy 4.4% now. And with a 10% dividend increase set to take the yield to 4.9% next year, Imperial Brands is a stock Im tipping to do well in 2017.
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Edward Sheldon owns shares in Legal & General Group, DS Smith and Imperial Brands. The Motley Fool UK has recommended DS Smith and Imperial Brands. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.