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Our Latest Research 10/07/2017

Investment Tools Ltd.
Our Latest Research 10/07/2017

Growth in dividends is one of the best ways to protect capital over the long term, and today we're using our DividendMax Optimizer to select a group of shares that meets this criterion of dividend growth. We're going to allow any Market Capitalisation in our search, and will insist on a dividend cover of 2 or more. We're also going to look for a 3 year track record of consistent dividend increases.

Our dividend growth selection will be based on those companies that are forecast to increase their dividend by more than 10% in the current financial year.

This initial filter throws up thirty six UK companies which we will need to reduce before we can continue the analysis. In this analysis, we will pick out five of the thirty six and will revisit the rest in subsequent research pieces. We'll also highlight a couple of more risky companies that have interesting potential.

The first reduction will come from reducing the number of house builders in the list from five down to one. We have long been an admirer of Bellway so we will stick with them. They have increased their dividend for the past seven years with the recent sequence in terms of percentage increases being 60%, 50%, 73.3%, 48.1% and last year's 40.3%. We are looking for a dividend increase in line with market forecasts for an EPS increase of around 13%. This brings us out at 122.5p. They have strong cover of almost 3x which augurs well for future dividend increases. They are trading close to their all time high, though the multiple remains low.

After steering clear of banks for a very long time now, we are actually optimistic about the FTSE 100's Lloyds Banking Group which we are forecasting will increase its dividend by 17.6% to 3p for the current financial year. They may also continue to pay a small special dividend, but this cannot be relied upon. Lloyds holds a very powerful position in the UK personal banking sector which we believe will allow it to deliver above average dividend increases for the foreseeable future. In recent times the shares have suffered a setback (they are down over 10% from their high)  which has brought the yield up nicely towards 6%.

FTSE 250 firm RPC Group have an impressive track record of increasing their dividend with a CADI (consecutive annual dividend increases) of over 10 in DividendMax. They have already declared their final dividend at 17.9p going ex on the 17th August. They trade on a lowly multiple that probably does not reflect their decent track record and future prospects.

Another company that we like who report their finals on Wednesday 12th July is FTSE 100 technology group Micro Focus International. They are currently bedding down a large acquisition / merger and we believe they have the management  to undertake this successfully. Their dividend track record is very good over the years and they also have a CADI of over 10. They have fallen back from their high of 2660p and currently trade at £22.

We also like FTSE 250 firm Polypipe that has delivered a strong set of results in 2016 and we expect them to continue to deliver. The business has good momentum and there are currently no signs of significant weakness in their end markets. They are trading over 10% below their high for the year.

Other more risky plays include XLMedia and Stock Spirits Group, which is fairly new to DividendMax and was brought to our attention by one of our members.

 

 

Fundamentals

Company

P/E

Div Cover

Optimized yield

Annual Dividend (E)

Previous Dividend (A)

Share price

Bellway

8.3x

3.0x

5.10%

122.5p

108p

3051p

Lloyds Banking

8.9x

2.0x

5.65%

3.0p

2.55p

65.7p

RPC

10.9x

2.7x

5.37%

24.4p

17.5p

770p

Micro Focus

16.8x

2.1x

4.87%

70.8p

48.69p

2201p

Polypipe

14.2x

2.5x

3.76%

12.0p

10.1p

385p

Stock Spirits

14.3x

2.0x

5.40%

7.8p

6.57p

169p

XL Media

12.7x

2.0x

6.50%

7.0p

6.05p

136p

 

Broker opinions

Company

Buy

Hold

Sell

Bellway

11

2

1

Lloyds Banking

14

4

3

RPC

9

0

0

Micro Focus

4

2

2

Polypipe

4

1

0

Stock Spirits

1

1

1

XL Media

1

0

0

Companies mentioned

This article was originally acceessible only to DividendMax members and is now publicly available.

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