Today I am looking at the investment potential of two terrific dividend plays.
Build bountiful returns
I first ploughed into Barratt Developments (LSE: BDEV) a couple of years back, once the true scale of Britain’s supply/demand crunch became apparent. My faith was rewarded as the homebuilder emerged as one of the FTSE 100’s best performers in 2015 despite a patchy end to the year — in total, Barratt saw its share price advance 33% between January and December.
And I see no reason for this upward trend to cease any time soon, certainly if today’s latest trading update is anything to go by. Barratt announced that total completions clocked in at 7,626 units between July and December, surging 9.4% from the corresponding 2014 period. Meanwhile average home values galloped 10.8% to £254,000.
And assisted by government initiatives such as ‘Help To Buy’, Barratt also saw forward sales leap an incredible 20% in the half, to top the £2bn mark. And I am convinced homebuyer demand should keep on striding forth thanks to increasingly-favourable lending conditions, not to mention a wider backcloth of improving wage packets and falling unemployment.
It comes as little surprise that the City also expects Barratt to continue punching rip-roaring earnings growth, in the near-term at least, and an 18% rise is currently forecast for the 12 months to June 2016. Consequently the business is anticipated to churn out a dividend of 30p per share for the period, yielding a delicious 4.9%.
With cash generation also improving — Barratt recorded net cash of £24m as of December, swinging from debt of £134.2m a year earlier — and housing demand set to continue outstripping supply for some years yet, I reckon the housebuilder is a terrific contender for dependable dividend expansion.
A banking beauty
Thanks to the result of massive restructuring on the bottom line, not to mention its improving revenues outlook on the UK High Street, I believe Barclays (LSE: BARC) should also prove a solid dividend performer in the years ahead.
The bank’s ‘Transform’ programme has worked wonders in improving the company’s long-term cost base, offsetting the impact of severe financial penalties, and helping inject ballast into Barclays’ balance sheet. Indeed, the firm’s CET1 ratio rang in at a healthy 11.1% as of last September.
Barclays is expected to get its progressive dividend policy back in action for 2015, thanks to its improving earnings outlook — a projected 24% bottom-line advance last year is expected to push the payout to 6.6p per share from the 6.5p paid in each of the past three years.
And estimates for a further 21% earnings push in 2016 is expected to propel the dividend to 8.3p, creating a chunky yield of 3.6%. While this figure may be only marginally better than the average for the wider FTSE 100, I expect Barclays’ dividends to continue growing at an incredible rate as profits take off.