Three dividend ideas for September

Best UK dividend stocks September 2017

September is here, and the FTSE 100 continues to trade at a high level of over 7,400 points.  Despite the high level of the market, there’s still plenty of dividend opportunities on offer. Here’s a look at three dividend stocks that look attractive at present, in my opinion.

Legal & General Group

Legal & General Group (LON: LGEN) (LGEN.L) made my August ideas list, and I’m listing the stock again in September.

The insurer released half-year results during August, and business appears to be ticking over nicely. Operating profit for the half year rose 27%, earnings per share increased 41% to 15.94p, and the company raised the interim dividend from 4.0p to 4.3p. Legal & General’s Solvency II coverage ratio was 186%, up from 171% last year.

Chief Executive Nigel Wilson was bullish about the future, stating:

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.”

The stock traded as high as 280p during August, but has since fallen back to the 260p level. At that price, the trailing yield is a strong 5.5%.

City analysts expect a payout of 15.2p this year and 16.1p next year, dividend growth of 6.0% and 5.7% respectively. Earnings this year are expected to come in 23.6p, which not only gives an adequate dividend coverage of 1.55 times, but places the stock on a forward looking P/E ratio of 11.0.

Saga

I also like the look of over-50s specialist Saga (LON:SAGA) (SAGA.L) right now. The company provides insurance and travel services to customers aged 50 and over, and stands to benefit from the UK’s ageing population, in my view.

Saga paid out dividends of 8.5p for FY2017, and City analysts expect the payout to climb to 9.3p for FY2018, a forward looking yield of a decent 4.6%.

The company is forecast to generate earnings of 14.8p for FY2018, which gives a dividend coverage ratio of 1.6 times, and places the stock on forward looking P/E ratio of 13.6.

Fund manager Neil Woodford holds the stock in his Income Focus Fund, although he also has a significant holding in Provident Financial, and look what happened to that recently. The lesson – don’t blindly follow fund managers’ picks.

Saga will report interim results on 22 September 2017.

Greene King

Lastly, I also like the dividend yield on offer from pub owner Greene King (LON: GNK) (GNK.L) at the moment.

Sentiment towards the company and sector is low at present, as investors are concerned about a Brexit-related slowdown and government initiatives such as the increase in the minimum wage. This has pushed the share price down from around 980p in late 2015, to 660p today.

This year’s dividend payout was 33.2p, which equates to a generous dividend yield of 5.0% at present, and while coverage was 1.5 times this year, it’s expected to increase to 2.1 times next year. Forecast earnings of 70.2p per share place the stock on a forward looking P/E ratio of just 9.4.

Conditions will most likely remain challenging in the short term, but for long-term investors, the dividend yield and valuation look attractive in my view.

Disclosure: Edward Sheldon, CFA owns shares in Legal & General Group and Greene King. 

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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