October is here, and after a slightly more volatile month last month, the FTSE 100 index is still hovering around the 7,400 mark. While some FTSE 100 stocks are enjoying strong momentum at present, others are way off their highs. With that in mind, here’s a look at three dividend stocks I like right now.
While Aviva (LON: AV) (AV.L) does not have a long-term track record of consistent dividend increases, the company has undergone a significant transformation in recent years, resulting in impressive dividend growth since FY2013.
Indeed, after paying a dividend of just 15.0p in FY2013, the insurer has paid out 18.1p, 20.8p and 23.3p over the last three years, compound annual growth of 11.6%.
City analysts expect a further 13.3% dividend rise to 26.4p this year – a dividend yield of 5.2% at the current share price. Forecast earnings of 54.4p should provide dividend coverage of 2.1 times.
Half-year results in August were solid, with the company reporting a strong Solvency II coverage ratio of 193%, an operating profit rise of 11%, and an 11% increase in the interim dividend. Chief Executive Mark Wilson commented:
“We have made a good start to 2017, delivering growth in operating profit and dividends, maintaining capital strength and reallocating capital towards our businesses with the greatest potential. As a group, Aviva is getting leaner and stronger and we are confident in our ability to sustain growth in the coming years.”
Trading on a forward looking P/E of just 9.4, Aviva looks good value relative to both its insurance peers (Legal & General P/E 10.6, Prudential P/E 13.0) and the wider market (FTSE 100 P/E 15.1), in my opinion.
Sentiment towards ITV (LON: ITV) (ITV.L) has been poor for a while now. Indeed, since the start of last year, ITV shares have fallen over 30%. With the advertising market experiencing a slowdown at present, investors are perhaps concerned that ITV may cut its dividend as it did during the Global Financial Crisis.
However, I think the fears are overdone. ITV is a more diversified business in 2017 than it was a decade ago, and now generates over 50% of its revenues from sources other than spot advertising.
Not only has this enabled ITV to pay out dividends of 4.7p, 6.0p and 7.2p over the last three years, but the company has also rewarded shareholders with significant ‘special’ dividends as well in this time. The interim dividend was recently hiked another 5%, suggesting a possible disconnect between the long-term fundamentals of the company and current share price sentiment.
City analysts expect a full-year dividend payout of 8.24p, which equates to a 4.7% yield at the current share price. Forecast earnings per share of 15.6p provide dividend coverage of 1.9 times. On a forward looking P/E ratio of 11.2, I like the risk-reward proposition here. As such, I added ITV shares to my personal dividend portfolio in September.
While Aviva and ITV don’t have particularly strong long-term dividend growth track records, Neil Woodford owned Babcock International (LON: BAB) (BAB.L) does.
Indeed, if we account for the company’s 5 for 13 rights issue in 2014, we see that the FTSE 100 engineering services firm has increased its dividend every year since 2000. That’s an impressive dividend growth history.
Since the 2014 rights issue, Babcock shares have declined by around 40%, however, at the current share price, value is appearing in my view. The company’s forward looking P/E ratio now stands at just 9.9, and if Babcock can deliver on the estimated FY2018 dividend payout of 29.6p, the prospective dividend yield is a healthy 3.6%, forecast to be covered 2.8 times.
The company released a trading update in September, reassuring investors that trading was in line with expectations, and that 89% of revenue was in place for 2017/2018.
In my view, Babcock International looks to offer appeal as a consistent dividend growth stock trading at a reasonable valuation.
Disclosure: Edward Sheldon, CFA owns shares in Aviva, ITV and 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.