There was quite a buzz around Cash ISAs during the final months of 2018. Banks and building societies were belatedly responding to Bank of England base rate hikes in the summer by raising the interest rates on their savings products, and it wasn’t wholly surprising to see savers rejoice given the pathetic returns that have been on offer from cash products over the past decade. However, interest rates still weren’t much to shout about late last year, and over the past few months, these increases have ground to a halt.
Right now the best Cash ISA rate currently on offer is 1.46% and offered up by Leeds Building Society (according to Moneysupermarket.com). This clearly isn’t the sort of product that’s going to make you chunky returns on your cash, and the situation is unlikely to improve any time soon as the weak UK economy likely encourages the Bank of England to hold off on raising benchmark rates.
Dividend exploder
Why accept such paltry rates when there are so many great dividend stocks out there waiting to pay you a fortune? Take 4Imprint Group (LSE: FOUR), for example.
The business, which manufactures pens, T-shirts, magnets and a broad range of paraphernalia for marketing purposes, doesn’t offer the biggest yields out there. For the current fiscal year and next, these sit at 2.3% and 2.6% respectively, some way below the large-cap average which sits at 4.5% (but still more than a Cash ISA).
However, the rate at which it’s hiked dividends in recent times — and is expected to continue doing so — should be enough to make any shrewd income seeker sit up and take notice. In 2018 4Imprint raised the total ordinary dividend 25% to 53.15p per share, and in 2019 and 2020 respectively rewards of 60.2p and 67.7p are anticipated by City analysts.
More special dividends too?
What’s more, it’s quite possible, given the rate at which 4Imprint’s profits are swelling and cash exploding, that it will keep paying special dividends as well (on top of that 53.15p per share ordinary dividend the firm paid a 43.17p supplementary dividend last year).
Revenues at the FTSE 250 firm exploded by almost a fifth in 2018, to $738.4m and pre-tax profits subsequently sailed 9% higher to $44.2m. 4Imprint has designs on driving sales through the $1bn milestone by 2022 and why wouldn’t it be so ambitious?
Chairman Paul Moody recently commented that “our market opportunity remains substantial.” Judging by the reception it’s received to recent TV advertising campaigns to improve brand awareness (steps that saw new customer numbers rising 14% last year and its customer service and back office operations pushed to breaking point) he’s not wrong.
Indeed, news that trading in the first few weeks of 2019 had been “encouraging” shows that conditions remain fertile enough for earnings at 4Imprint to keep rising. It’s why City brokers are expecting bottom-line rises of 19% in 2019 and 7% in 2020, figures I believe could be upgraded as the months roll by, given the strength of economic conditions in its core US territory and those marketing improvements.
A forward P/E ratio of 23 times makes the business expensive on paper, but for my money it’s worth every penny and, unlike a Cash ISA, could well make you a fortune in the years to come.