At first glance Lloyds Banking Group (LSE: LLOY) may still appear to be one of the FTSE 100’s hottest dividend bets.
After getting its dividend policy back up and running in early 2015, the fruits of its multi-year cost cutting plan has seen the bank deliver chunky annual increases since then. And City analysts expect Lloyds’ generous policy to keep on trucking — indeed, a payout of 3.7p per share (up from 2.55p last year) is chalked in for 2017.
This figure yields a staggering 5.1%, and takes out the FTSE 100 forward average of 3.5% by no little margin.
But those hoping for shareholder rewards at Lloyds to keep growing at spectacular rates could be in for a rude awakening, in my opinion.
Not only could revenues move into reverse as UK economic growth stalls (the Office of National Statistics today downgraded first-quarter growth to 0.2% from 0.3% previously), but the hard work achieved by its Simplification streamlining drive threatens to be undone by rising PPI bills as the 2019 claims deadline looms into view.
Strong… And stable
For those seeking safer dividend prospects in the near-term and beyond, I reckon Persimmon (LSE: PSN) is a far safer investment destination.
Look, Britain’s housebuilders are not immune to the pressures created by signs that the UK economy is beginning to cool. Indeed, the latest Bank of England report this month showed 66,837 mortgages successfully approved in March, down from 67,936 in the prior month and the second successive monthly dip.
Despite a moderation in homebuyer confidence, however, the mortgage rate wars between Britain’s lenders is stopping customer enquiries from falling off a cliff as many had expected. And ultra-attractive rates look likely to last as competition in the banking sector heats up.
Clearly this bodes well for home prices, and with it the earnings picture at the likes of Persimmon. But this is not the only supportive factor for the building sector, of course, as enduring government inaction keeps the country’s vast homes shortage running.
More to come?
Naturally it would appear the stonking home values rises of previous years, and subsequent double-digit earnings surges at the likes of Persimmon, have been consigned to history. But I see no reason why the business cannot remain a hugely cash-generative and reliable profits generator, and thus a hugely-generous dividend payer.
Persimmon’s latest trading statement in April should certainly eliminate any fears that earnings are about to take a dive. The York business advised that total forward sales during the period from January 1 to April 27 was 11% higher from a year earlier, at £2.56bn. And the average price of its homes had climbed 4.1% year-on-year at around £229,500, the firm added.
This backcloth leads City analysts to retain a positive outlook for Persimmon’s dividend profile and, supported by a predicted 6% earnings uplift in 2017, the construction colossus is expected to pay a 128.6p per share dividend. This figure yields a brilliant 5.2%.
And I am convinced Persimmon should continue delivering increasingly-attractive dividends long into the future.