Those seeking robust dividend growth in spite of rising political and economic turbulence in the UK could do a lot worse than check out Pennon Group (LSE: PNN) right now.
The Conservative Party conference this week raised more questions than it provided answers, with the outlook over the future of prime minister Theresa May and the government’s approach towards Brexit remaining clear as mud.
And this was not the only news this week to trouble jittery stock pickers with a slew of PMI surveys compounding fears that the British economy is sliding fast. While the critical services report may have marginally trumped expectations, new business growth was still at its lowest level since last August.
Dividends still flowing
In this environment, share pickers could do a lot worse than pile into the relative safety of Britain’s utilities, I believe.
However, not all such companies are created equal, particularly after the Tories’ vowed to up the attack on Centrica, SSE and the rest of the country’s major electricity providers by announcing plans to publish a draft bill next week that will examine the introduction of energy price caps.
Water providers like Pennon are not immune to regulatory scrutiny, of course, but the spotlight is far less intense than on the electricity suppliers. As a consequence, I expect the South West Water owner for one to keep delivering brilliant shareholder returns.
The City is expecting earnings at Pennon to keep on growing, with rises of 2% and 12% chalked in for the years ending March 2018 and 2019 respectively. And so dividends at the business are expected to keep chugging skywards also.
Last year’s 35.96p per share reward is anticipated to rise to 38.5p in the present period, and again to 41.3p in fiscal 2019. As a result, Pennon sports mountainous yields of 4.8% and 5.2% for this year and next.
Construct colossal returns
But the FTSE 250 play isn’t the only big yielder worthy of attention in these uncertain times. Indeed, I believe housebuilder Persimmon (LSE: PSN) is also worth checking out at the present time.
Now look, I realise that the FTSE 100 share is more attuned to the fate of the broader economic and political landscape than the likes of Pennon. A Bank of England rate hike later this year or in early 2018 is still being touted in many quarters, a situation that could take a bite out of homebuyer demand. And of course, the impact of a worsening Brexit malaise on economic conditions and consumer confidence could also harm buying activity.
However, I am confident that Britain’s colossal homes shortage — a point underlined at this week’s Conservative conference — should continue to support home values, and thus continue pushing profits at Persimmon and its peers higher.
My view is endorsed by the number crunchers, who are predicting earnings expansion of 18% and 5% in 2017 and 2018 respectively. And so dividends are also expected to keep growing (from 110p per share in 2016 to 133.9p this year and 136.8p next year).
I reckon subsequent yields of 5% and 5.1% make Persimmon worthy of serious consideration by income chasers.