With inflation edging towards 3%, and possibly set to rise even higher as the Brexit-driven fall in the pound continues to bite, seekingbetter-than-average dividends and ones with strong progressive futuresis an increasingly attractive strategy for achieving long-term wealth.
Cash from cash
Specialist currency manager Record (LSE: REC) is offering both at the moment, with last years 4.3% dividend yield set to rise to 5.9% and then 6.2% overthe next two years. And those upliftsare way ahead of inflation a 32.5% hike for the year to March 2018, followed by a further 5.7% boost the year after.
Fridays first-quarter updatelent confidence to those expectations too, with the firms assets under management equivalents up 2.9% to $59.9bn (from $58.2bn on 31 March). In sterling terms that translated to a 1% fall from 46.6bn to 46.1bn, but that still seems fairconsidering the erratic nature of the pound.
Inflows
Chief executiveJames Wood-Collins told us ofinflows of $0.6bn from existing clients during the quarter, and spokeof the uncertainty that continues to impact the worlds currency markets and thats what makes people edgy and require the services of firms like Record.
Thatattractive dividend policy is only one way in which Record has been returning cash to shareholders, with a 10m tender offer to buy up shares at a premium having taken place this month and it was oversubscribed.
The shares are currently at 43.75p, having gained 77% over the past 12 months, and that puts them on a forward P/E of 13.2 on 2018 forecasts, dropping to 12.6 for 2019.
That looks cheap to me, andif these mooted dividends materialise, I can see investor sentiment strengthening and demand for the shares growing so there could be a nice growth opportunity here too.
Strongly progressive
By comparison, the 2.3% dividend yield expected from Homeserve (LSE: HSV) this year might not look that tempting, but its key attraction is its inflation-busting rises. The 15.3p paid out for the year ended March 2017 represented a 20% leap from the year before, and analysts are expecting rises of 9.4% this year and 8.7% next.
Thesupplier of emergency plumbing and electricity services has said it intends to adopt a progressive dividend policy and targets a dividend cover in the range 1.75to two times over the medium term. And with the past three years of EPS rises predicted to continue with growth of 14% and 11% over the next two years, I seethe dividend as reliable.
Fridays update spoke of continued strong growth in the current financial year, with seasonal businessbeing weighted more towards the second half.
North American performance looks good, with 2.5m new households added, partly due to 24 new partnership deals. At the same time,UK and European business looks to be on target.
Growth too
Acquisition and expansion into thehome repairs and improvements market is part of Homeserves strategy, and I see that as a rather exciting new market it could potentially be a lot bigger than todays emergency services business.
And thats what makes Homeserve even better than a just progressive dividend candidate were looking at a long-term growth share too. Granted, the next two years PEG ratios arent superbly attractive at 1.6 and 1.9, but Id say theyre plenty good enough for a nice growth/income combination.
P/E multiples ofa bit over 20 might look high, but I can see those coming down significantly over the next few years.
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