November is here and the FTSE 100 is still hovering around the 7,400/7,500 mark.
I keep expecting some kind of correction to occur, but global markets appear very complacent at present.
While the index is near its all-time highs, many dividend stocks have fallen significantly in recent months, so value from a dividend investing perspective is definitely starting to appear.
With that in mind, here are three dividend stock ideas for November.
Lloyds Banking Group
The bull case for Lloyds (LON: LLOY) (LLOY.L) has grown on me.
After cutting its dividend during the Global Financial Crisis, Lloyds reinstated its dividend in 2014. Since then, it has increased the dividend payout every year from 0.75p to 2.55p, plus paid two special dividends of 0.50p in each of the last two years.
The City currently expects full-year dividend payouts of 3.97p and 4.52p for this year and next from Lloyds, equating to colossal dividend yields of 5.8% and 6.6% respectively. Obviously, these are just consensus estimates, and there’s no guarantee that Lloyds will actually pay dividends of that size. If the UK economy takes a significant downturn, or the property market collapses, all bets are off.
However, Q3 results released in October revealed that the bank has momentum at present. Underlying profit for the first nine months of the year rose 8% and Chief Executive Antonio Horta-Osorio declared that the bank had delivered a “strong financial performance” with “strong capital generation.” It was refreshing to see that there were no further PPI charges.
Trading on a forward looking P/E ratio of just 8.8 right now, Lloyds looks to offer significant dividend potential at a very reasonable valuation.
Legal & General Group
Legal & General Group (LON: LGEN) (LGEN.L) has been a dividend champion in recent years, notching up seven consecutive dividend increases since the Global Financial Crisis.
Last year, the insurer paid out dividends of 14.4p, a yield of 5.4% at present, and this year, City analysts expect a payout of 15.2p, equating to a yield of 5.7% at the current share price.
Half-year results released in August revealed strong numbers, with a 41% rise in earnings per share to 15.9p, 41% growth in profit before tax, and a 26.7% return on equity. Chief Executive Nigel Wilson commented at the time:
“Our business model has proven to be resilient to political, economic and regulatory uncertainties. We are not being complacent as we recognise that there are currently some structural weaknesses in the UK economy. Notwithstanding this we have tremendous momentum across our business, a strong AA- rated balance sheet and increasing access to global growth opportunities, therefore we remain confident in our ability to deliver growth.”
Trading on a forward looking P/E ratio of just 10.9, with a potential dividend yield of 5.7% on offer, Legal & General remains one of the better dividend stocks in the FTSE 100 index, in my view.
Close Brothers Group
Moving away from mainstream dividend picks and scanning the FTSE 250 index for dividend opportunities, I believe merchant bank Close Brothers Group (LON: CBG) (CBG.L) offers dividend appeal at present.
Close Brothers offers a range of financial services including lending, finance, wealth management, deposit taking and securities trading. Despite having an impressive dividend growth track record, the stock is not on the radar of many dividend investors.
The bank released FY2017 preliminary results in late September and the numbers looked very respectable, with adjusted operating profit rising 13%. The bank’s loan book grew 7% and operating profit at Winterflood, the bank’s securities arm rose an impressive 50%. The dividend was increased by 5% to 60p per share. The bank gave the following outlook:
“Although current market conditions remain stable overall, the longer-term economic outlook and impact of Brexit on our customers and wider markets remain uncertain. Against this backdrop, we are fully committed to our proven business model and we remain confident in our ability to trade successfully through the cycle.”
An examination of Close Brothers’ dividend history reveals an impressive track record. Whereas other banks and financial institutions such as Lloyds cut their dividends during the Financial Crisis, Close Brothers was able to hold its dividend steady at 39p per share between 2008 and 2010. Since then, the dividend has been increased to 60p.
This year’s 60p dividend results in a dividend yield of 4.3% at the current share price. Dividend coverage was a healthy 2.2 times.
Trading on a forward looking P/E ratio of just 10.7, Close Brothers is another stock that looks to offer both an attractive dividend yield and a low valuation, in my opinion.
Disclosure: Edward Sheldon, CFA owns shares in Legal & General Group.
This article is provided for general information only and is not intended to be investment advice. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.