I like a good dividend. But I like one thats being lifted ahead of inflation even better and thats whats on offer fromHogg Robinson Group (LSE: HRG).
Last years dividend was raised by 5.2%, after an 8.2% hike the year before, and forecasts suggest a further 4.9% uplift this year followed by 6.5% for the year to March 2019.
That would be very attractive even with relatively low current yields, but Hogg Robinson is way ahead of that too, with forecasts suggesting yields of 3.5% this year and 3.8% next.
The firm, which describes itself as a global B2B services company specialising in travel, payments and expense management, revealed first-half results on Thursday which were pretty much in line with expectations.
New growth strategy
With revenue down 1% (5% at constant exchange rates) and underlying pre-tax profit down 7% (10% at CER), underlying earnings per share dropped 6% but that was put down mainly to therollover impact of some client losses and sales slowdown, together with planned investment in strategic priorities.
The interim dividend was lifted by 6%, while net debt dropped by 0.9m to 30.1m and Im not really bothered by a debt figure of that level for a company with a market cap of 250m.
Chief executiveDavid Radcliffe called it early and positive results from our new strategy for growth, the first phase of which has seen us invest in the future of our business, adding that the firm has enjoyed a pleasing number of new blue-chip client wins.
Were looking at a forward P/E of 11.3 this year, dropping to 9.3 next year when EPS is predicted to grow by 21%, and that looks like bargain territory to me.
Faster rises
Theres an even more impressive dividend progression on show from Grainger (LSE: GRI), the UKs largest listed residential landlord though its currently offering more modest yields.
Grainger paid out 2.04p per share in dividends in 2013, and just three three years later the annual payment had more that doubled to 4.5p (and that was covered four times by earnings). Forecasts indicate further rises of 9.1% this year and a whopping 15% next year.
Granted that would provide a yield of only around 2%, largely because the share price has soared by 150% over the past five years, but its setting the scene for an income stream which could compound nicely in the coming years.
Expansion
The firms latest news is of aprivate rented sector acquisition after it exchanged contracts to forward fund and acquireGilders Yard in Birmingham, which comprises 156 new purpose-built rental homes, for approximately 28m. Grainger expects to earn a gross yield of 7% over cost once the development is stabilised.
That comes after the 30.5m acquisition of a 139-home rental development in Milton Keynes, and a build-to-rent project of 375 homes in Salford for 80m, both in August.
At the interim stage at 31 March, net debt stood at 791m, but a loan-to-value ratio of 36% means Im happy enough with that, and a reduction in cost of debt to 3.6% (from 3.9% six months previously) is satisfying.
Net rental income in the period grew by 11%, with pre-tax profit up 13%, and I see the firms strategy of cost-effective expansion as very attractive for a long-term investment. I see a serious cash cow in the making.
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