The two dividend stocks I bought in November – Lloyds Bank and Imperial Brands

Imperial Brands Unilever

A quick update today to reveal two dividend stocks I have bought recently.

During November I added Lloyds Banking Group (LON: LLOY) to my portfolio. I also added to my existing position in Imperial Brands (LON: IMB).

Lloyds Banking Group

The bull case for Lloyds has grown on me. Q3 results released recently were solid, with no further PPI charges. Chief Executive Antonio Horta-Osorio declared that the bank had delivered a “strong financial performance” with “strong capital generation.”

Clearly, as a bank that generates all of its revenues from the UK, the investment case for Lloyds is not risk free. A Brexit-related recession or property market downturn would affect profitability.

However, I believe that at the current valuation and dividend yield, that’s a risk worth taking.

The bank reintroduced its dividend in FY2014, and since then has increased the payout significantly. Analysts currently forecast a dividend payout of 4.02p for 2017, which at the current share price of 66p, is a yield of 6.1%. A further increase is expected for FY2018. There’s cash cow potential here, in my view.

The valuation looks attractive too. The stock currently trades on a forward looking P/E ratio of just 8.5. If the bank continues to raise its dividend going forward, I can’t see the valuation remaining at that level for very long.

Imperial Brands

I also took advantage of share price weakness to buy a little more Imperial Brands.

The tobacco giant reported full-year FY2017 results during the month, and revealed that it is making solid progress on its strategy of strengthening its brand portfolio.

The dividend was hiked by an impressive 10% as promised. That’s now nine consecutive 10% increases, a phenomenal performance. Investors will receive 170.7p per share for FY2017, a yield of 5.4%. Another 10% hike this year would push the yield up around 6%.

I was interested to hear Neil Woodford’s recent comments about Imperial. Woodford Investment Management said:

What has changed recently, is the stock market’s level of interest in the investment case – it simply does not fit with the current market zeitgeist, and consequently, its share price has declined by almost 20% over the last twelve months.

As a result of the recent share price performance, Imperial Brands has revisited valuation territory that we haven’t seen in many years. The shares currently yield more than 6% which, for such a cash generative business with a long track record of delivering consistent growth, just looks like the wrong price.”

I agree with Woodford’s stance here. Given Imperial’s strong track record of nine consecutive 10% dividend increases, a forward P/E of 11.5 (vs 16.1 FY2018 P/E for British American Tobacco) and prospective FY2018 yield of 6%, looks like a steal. As such, I bought more of the stock.

Disclosure: Edward Sheldon, CFA owns shares in Lloyds Banking Group and Imperial Brands. 

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.

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