The reason why I like this company is simple, it is a cash cow. Since the beginning of 2005, one share in the group has yielded a total of 941p in dividends. This works out at 275% of the initial share price of 342p on January 1 that year. 

And I see no reason why this trend cannot continue. Management aims to pay out around 45% of earnings to investors via a regular dividend with any extra cash returned via a special payout every year. For example, the last interim payout in 2017 was made up of a 37.9p per share regular dividend, and an 18.1p special. Every year since 2005 Admiral has paid a special and regular distribution to investors. 

City analysts are expecting shares in the company to yield 5.3% for 2017, and 5.5% for 2018. Both of these figures include special dividends. 

Growth ahead 

Even though Admiral has proven itself to be an income champion over the past decade, it has lacked growth. Since 2013 earnings per share have only expanded by a tiny 5.7%. 

However, the firm is investing heavily in its overseas operations, which are currently proving to be a drain on profits, but when these businesses stop bleeding red ink, the sky could be the limit for the group. Indeed, the opportunity for Admiral’s overseas business is enormous. For the year to June 2017, the number of international customers using the firm’s services rose 27% to just under 1m.

As this global business grows, along with Admiral’s existing UK business, I believe the dividends should continue to flow. 

Growth through acquisitions 

My second top income pick for 2018 is Air Partner (LSE: AIR). It is currently in the middle of a transition. The company used to be a pure jet broker, but management is now diverting excess funds into buying new businesses, which are more stable. Jet brokering can be a cyclical business, especially private jet brokering where Air Partner specialises. Nonetheless, profit margins are wide so the group has been able to generate plenty of cash to reinvest in the business. 

The group’s latest deal is the acquisition of air traffic control services provider SafeSkys Ltd, which should help underpin stable long-term growth. Following this, and other significant purchases last year, City analysts are expecting Air Partner’s earnings per share to jump 22% for the year to 31 January. A 5.8% increase in the full-year dividend is expected to give a yield of 3.9%. 

Worth a premium 

The one downside is that shares in the company currently trade at a premium valuation of 17.6 times forward earnings. Although considering the firm’s double-digit earnings growth rate, and its acquisition strategy, I believe that this looks too expensive. If management can continue to make sensible acquisitions and return cash to investors, over the next few years shares in Air Partner could really take off. 

The post My top 2 dividend stocks for 2018 appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns shares in Admiral Group and Air Partner plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

So, rather than chasing the market’s highest yields, I’m looking for the highest quality payouts and I’m willing to sacrifice yield for quality.

Air Partner (LSE: AIR) is a great example. At the time of writing shares in the company currently support a dividend yield of 4.4%, which is more than the market average, but there are higher payouts out there. Still, what’s attractive about this one is the quality. 

Cash rich

Air Partner is a cash-rich business and management is trying to grow earnings slowly through select acquisitions. Thanks to these acquisitions, statutory profit before tax increased 38.6% in the year to 31 January. Excluding customer cash deposits, group cash rose by a third from £3m to £3.9m — enough to fund the dividend for nearly two years if profits evaporated. 

Management has stated that Air Partner’s dividend payout will be covered twice by earnings per share so if earnings continue to grow at a double-digit rate, shareholders will be well rewarded.

Special payouts 

Shares in Next (LSE: NXT) also support a relatively average dividend yield of 3.6% at the time of writing, although it’s the company’s hidden income that excites me. 

Next has a history of returning cash to shareholders, and in the company’s full-year 2016 results release, management said it will return £225m to investors this year via ordinary dividends and £255m to investors via special dividends. This cash return works out at around £3.31 per share, implying a dividend yield at current prices of 7.5%. 

Once again, this payout looks to be relatively high quality as the £255m being returned is surplus cash. If trading performance deteriorates, management can dial back returns and conserve cash for another day.

Making progress

Royal Dutch Shell (LSE: RDSB) may not be everybody’s idea of a high-quality dividend stock, but with a yield of 6.8% at current prices, all dividend investors should consider the company.

There have been plenty of warnings about Shell’s ability to maintain its dividend over the past two years as the price of oil has collapsed but the company’s first quarter results showed that the firm has what it takes to operate in a world of lower oil prices and maintain its dividend.

Specifically, during the quarter the company generated $5.2bn in cash from operations, enough to pay the dividend and reduce gearing from 28% to 27.2% quarter-on-quarter. These results were achieved with an average oil price of $54.61 per barrel during the period, showing that even if oil prices never go above $60 again, Shell can quite easily afford to both reduce debt and maintain its hefty dividend payout.

The post My 3 favourite high-yield stocks I’m still buying appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns shares of Royal Dutch Shell B, Air Partner and Next. The Motley Fool UK has recommended Royal Dutch Shell B. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The reason for this approach is simple. By having a portfolio base made up of businesses that have a solid track record of producing returns for investors, I can rest safe in the knowledge that these investments will provide steady returns while taking on more risk in the balance of the portfolio. 

An income champion 

Imperial Brands (LSE: IMB) is one of my top three holdings for reasons that are apparent to all of the company’s existing shareholders. The company is an income champion and has an impressive history of return capital to shareholders. 

Between 1997 and 2016, shares in the company rose from 300p to 3,700p, a gain of 14% per annum. At the same time, the company’s dividend payout per share has increased by 11% per annum. A £15,000 investment back in 1997 would be throwing off £7,000 each year in dividend income today, and the capital value would have grown to £185,000. 

There’s no guarantee that these gains will continue, but considering everything that’s been thrown at the tobacco industry during the past two decades, it’s clear Imperial can handle itself. The shares currently trade at a forward P/E of 13.8 and support a dividend yield of 4.6%. 

Asset-light business 

Like Imperial, Lancashire Holdings (LSE: LRE) has an excellent record of rewarding shareholders. Insurance companies are some of the most profitable businesses around, and Lancashire is at the top of the pile when it comes to profitability. 

Specifically, the firm’s strict underwriting standards mean its combined ratio — the ratio of underwriting profits to claims paid out — is consistently under 100% (a ratio below 100% signals underwriting profitability) and has averaged 70% for the past five years. 

Lancashire’s hugely profitable operations also require little in the way of capital spending, so most of the firm’s profits are returned to investors. 

For the past three years, the group has returned more than 100% of income to shareholders via dividends and since the beginning of 2011 Lancashire has returned £5.02 per share to investors via dividends. If you had acquired 100 shares in Lancashire at the beginning of 2011 for £544 and reinvested all dividends, today you’d have a holding worth £1,301 for a total return of 139.2%. 

Unless the company suddenly decides to change its formula for success for the past five years, I expect these returns to continue. 

Cash cow 

Just like Lancashire, Air Partner (LSE: AIR) is a capital-light, high-returns business that’s chucking out cash. At the end of July 2016, the firm reported a net cash balance of £5.2m after the payment of dividends and acquisitions, up 274% year-on-year. 

Over the next 12 months, City analysts expect the company to pay out 5p per share in dividends, equal to a dividend yield of 4.3% at current prices. Air Partner’s strong cash balance should reassure investors that the payout is here to stay. For the year ending 31 January 2017, the firm’s earnings per share are expected to grow by 26%, and analysts have pencilled-in a further 16% growth for 2018.

The post My 3 biggest share holdings appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns shares of Lancashire Holdings, Air Partner and Imperial Brands. The Motley Fool UK has recommended Imperial Brands. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

However, I’m also well aware that not all dividends are the same and some are more attractive than others.  So, when picking dividend stocks, I’m looking for more than just an attractive dividend yield. I consider the company’s growth potential, payout ratio and record of investor returns, as well as other fundamental factors such as balance sheet strength.

Rapid growth 

Air Partner (LSE: AIR) is one stock that meets all of my dividend criteria and more. For a start, the shares support a dividend yield of 5.2% which, if history is anything to go by, will increase substantially over the next few years. The payout is up by 37% in five years and management recently hiked the company’s interim payout by 10%.

Alongside the attractive dividend, Air Partner is pursuing a growth strategy. Bolt-on acquisitions are helping the business grow and diversify away from its traditional business of jet brokering. Earnings per share expanded 30% year-on-year during the first half of the year as acquisitions contributed to growth. The company has plenty of firepower to pursue further acquisitions as well. Net cash rose 270% during the first half to £5.2m.

Perhaps the most attractive thing about Air Partner is the flexible nature of the company’s business. Jet brokering isn’t capital intensive, and a small capital outlay can generate huge returns. There’s no need for investment in planes or other projects that require huge upfront capital investment. The company’s five-year average return on capital employed is over 20%, which is nothing short of impressive.

Special dividends 

I’m attracted to Lancashire Holdings (LSE: LRE) as a dividend investment due to the company’s record of returning cash to investors.

Lancashire has turned its back on the traditional dividend model of paying shareholders a regular payout every six or three months. 

Instead, the company offers investors a token payout four times a year and one special payout. By structuring the dividend this way, the group has much more financial flexibility, which is needed to navigate the insurance market without any negative surprises. Further, the company is under no obligation to make the special payout, so if management decides to hold back cash, the market won’t suddenly dump the shares. This year many dividend champions have seen the value of their shares crash after reducing dividends to investors. With Lancashire, the chances of this happening are reduced. 

The company just announced a $0.75 per share special payout for the year, and since inception, the group has returned $2.7bn to investors, 104.9% of total comprehensive income. Based on current exchange rates, the special payout translates into a yield of just over 8%.

The post Why I own these two income champions appeared first on The Twelfth Magpie.

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• How much is needed in an ISA to unlock £1,220 of passive income a year?
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• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?

Rupert Hargreaves owns shares of Lancashire Holdings and Air Partner. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Dividends are invaluable but choosing the right dividend stocks can be tough. So here are three ideas as a starting point for further research.

Long-term income 

Standard Life (LSE: SL) is one of my favourite dividend stocks. The company manages pensions and long-term savings plans, which is a long-term business model and should generate returns for investors for decades to come. 

The company is currently trying to grow its fee-based asset management arm, a highly cash generative business and the size of Standard Life means that the group can achieve economies of scale that just aren’t available to smaller peers. Shares in the company currently support a dividend yield of 5.6%, and the payout of 19.7p per share is covered 1.3 times by earnings per share. 

Next year City analysts expect the company’s dividend payout to rise by 10% to 21.1p, equal to a dividend yield of 6%. The shares currently trade at a forward P/E of 13.6.

Shareholder champion 

Lancashire Holdings (LSE: LRE) is one of Neil Woodford’s favourite dividend stocks as the company has a history of returning the majority of its earnings to investors. 

Last year the group returned 187% of its income to shareholders. For 2014 the company returned 150% of income to shareholders and during 2013 Lancashire returned 170% of income to shareholders. 

The group has been able to return so much capital because management has decided that it would rather pay the firm’s insurance reserves out to investors than chase low return opportunities in the insurance market. City analysts expect the group to pay a special dividend to investors of 56p per share later this year for a yield of 8.6%. The shares currently trade at a forward P/E of 13.2.

Rapid growth 

Air Partner (LSE: AIR) is another company where management has decided to return the majority of profits to investors. 

During the past five years, the group has returned nearly 100% of earnings to investors via dividends as the business needs very little capital to run itself. City analysts expect the group to announce a dividend payout per share of 25p for this year, which is equal to a dividend yield of 5.5%. Next year analysts have pencilled-in a dividend payout of 25.8p per share for a yield of 5.6%.

Not only is Air Partner a dividend champion but the company’s earnings are also expected to grow rapidly over the next two years. The group is currently pursuing a diversification strategy, branching out into other areas of the aviation market with bolt-on acquisitions. 

City analysts expect acquisitions to boost earnings per share by 24% this year and a further 13% for 2018. Based on these forecasts, shares in the group are currently trading at a forward P/E of 12.4.

The post You can’t go wrong with these three dividend champions appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns shares of Lancashire Holdings, Standard Life and Air Partner. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.