Making regular passive income must be the ultimate lifestyle improvement tip when it comes to finances. It’s no wonder it’s become more popular these days, helping people have that little bit extra money for whatever they want it for.

For me, my dream was to retire early and spend time doing what I love, not just what pays the bills. And it was only through creating enough passive income that I was able to do so.

But, it can be tricky to find the right investments for my portfolio. These are two of my favourites that both play their part in letting me live my life how I choose to.

A growing dividend stable earner

City of London Investment Group (LSE: CLIG) have long been one of my favourite shares that I hold. I first bought this back in 2013 and every year since it’s paid out a chunky dividend. In fact, it’s grown by 9% on average since it started paying a dividend in 2007.

At the moment, it’s still trading down about 15% year to date, giving a historic-based dividend yield of around 7.8%.

If I didn’t already own plenty of these shares in my portfolio, I’d be happy to top up again.

A passive income diversified ETF

Next up, one of my favourite footsie-based ETFs, the not-so-catchily named iShares UK Dividend UCITS ETF (LSE: IUKD).

When I’m looking to live off my passive income portfolio, stability is good. And one way for me to achieve that is through this ETF. That’s because it invests in the top 50 individual high-yielding shares in the FTSE 350 after some basic screening.

If one company runs into issues and decides to cut their dividend, the average dividend yield will fall slightly. That’s much more manageable for me in terms of cash-flow than suddenly receiving nothing.

True, it comes with a slight cost for that benefit, but at 0.4% I think it’s reasonable for what I get.

Currently, it’s returning a potential dividend of around 6%, which I consider pretty good for something with those diversification upsides.

Again, it’s another I’d be happy to add to if I didn’t already own enough for my portfolio.

Playing the long game

At this point, you may be wondering if I’ve simply cherry-picked the passive income investments that have worked out best for me to make this article sound good.

The truth is, no, I own others that worked out better. And there are also those that turned out worse. The honest answer is that not all shares will work out — and that’s okay.

Because that’s why owning a diversified portfolio and holding onto it over the long term was the number one most important thing I did.

It was fundamental for growing my wealth in the first place. And then for turning that wealth into a passive income portfolio I now live off.

After all, I’m all about putting your money where your mouth is. And these tips helped me do exactly that.

The post WARNING! These passive income ideas seriously changed my life! appeared first on The Twelfth Magpie.

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Michelle Freeman has positions in City of London Investment Group and iShares UK Dividend UCITS ETF. The Motley Fool UK has recommended City of London Investment Group. 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.

City of London Investment Group (LSE:CLIG) is not exactly a household name, unlike so many of the more popular passive income investments you read about.

It’s not like a Rio Tinto or Royal Mail, where it’s easier to understand what they do. But it is a long-standing favourite of mine, so let’s introduce it properly.

What does it actually do?

Known for convenience as CLIG, you might first think it’s just like any other fund manager. But there’s one key difference here, in that it specialises in closed-end funds.

Originally focused on emerging markets, it has since widened that scope geographically. That’s alongside including other specialist investment types, like REITs (real estate investment trusts).

Why do I highly rate this passive income payer?

Why I like this particular investment comes down to three main reasons:

Consistency: CLIG first started paying a dividend in 2007 and has never missed a year since, not even through the 2008 financial and 2020 pandemic respective crashes.

I find that very reassuring, and it tells me that management are committed to returning value to its investors.

Growth: Consistently growing a dividend is another trademark of a great passive income investment. CLIG, from its starting dividend of 10p, has grown, on average, around 9% per year.

While it wasn’t always a smooth rise, that’s an overall dividend growth rate I’m very happy with.

Diversification: Spreading your risk is important in any investment portfolio and by investing in CLIG, I can indirectly gain exposure to closed-end funds and REITs globally. As I’m low on those in my own portfolio, this means I’m unlikely to duplicate existing holdings.

Those are all great reasons, but, as ever, there are risks to consider, so let’s get into those now.

What are the concerns with City of London Investment Group?

I see two key risks to assess with this particular investment:

Dividend Cover: CLIG can be seen to have a low dividend cover rate over time. While it usually keeps to around 1.5, it did fall to a mere 1.01 in 2020. Since then, it’s recovered back to 1.19, with management forecasting a return to the 1.5 level.

Changes at the top: Barry Olliff, founder of City of London Investment Group, is due to retire from his directorship on 31 July. With several other board changes at the same time, there’s a risk of a change of direction or lack of focus on delivery.

Do I think City of London Investment Group is a good buy now?

I first bought CLIG back in 2013, at the now bargain-seeming price of £2.58p. Since then, alongside that consistent passive income stream, it’s risen to well over £5 at times.

Recently, like many shares, it’s fallen from those highs – down about 15% this year, to around £4.20p. At that price it’s now offering a healthy 7.5% dividend yield.

And while market-timing is not a game I play, I have taken the opportunity to add to that original purchase.

Because as a long-term Foolish investor, I want exactly the kind of passive income investment it offers. And I see no reason for that not to continue for several years yet.

The post Why is City of London Investment Group such a great passive income payer? appeared first on The Twelfth Magpie.

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Michelle Freeman has positions in City of London Investment Group. The Motley Fool UK has recommended City of London Investment Group. 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.

I hadn’t heard of passive income back when I started investing. And I’ll admit it, I was nervous when buying my first share.

After all, I grew up in an environment where stock markets were considered dangerous, risky. They were something that only rich people played with.

But now, after almost 10 years of investing, that first stock– and others like it — turned out to be a key step to retiring early in my forties.

How did I start investing in shares?

I’ll be honest, I only started thinking about buying shares when other options, like savings accounts, started cutting interest rates. The further they fell, the more I knew I would have to do something different if I wanted to continue to grow my wealth.

So, I got curious. I started learning about how stock markets worked. Sites like The Motley Fool and the like are full of useful information, and I devoured them.

I was reassured by the long-term performance of stock markets, which was vastly different to the off-putting screaming ‘buy/sell now’ over-hyped headlines.

For example, if you look at the FTSE 100 over all the different 10-year periods it has been trading, you will get a range of annual returns from -8.7% to +19%. But no individual 10-year period has ever lost an investor money.

That was hugely comforting. Plus, the average 10-year return was around a healthy 8.9%. It was time to take the plunge and buy my first ever stock.

What was my first ever passive income share?

It might surprise you to learn that my first ever passive income share was the perhaps lesser known company called City Of London Investment Group (LSE:CLIG).

Why this company? I liked its track record of dividend payments, and it had a clear strategy for the future that made sense to me.

It was also out of favour in the markets, far down from its 52-week high of ~£4. I ended up buying 558 shares at £2.49, giving a dividend yield near 10%.

In fact, if I add up all the passive income I’ve received through dividend payments, it’s more than I paid for the original investment! And that’s ignoring the fact I could still sell those shares today for a healthy profit.

Those numbers might not look much to some, but I’ve since added to this and other holdings over the years. And then that’s when the real ‘magic’ happens. Slowly and steadily, you end up owning a substantial, diversified, passive income portfolio.

The truth of risk and reward

Now, I’m not sharing this to boast about my investment success. That’s not my style and they don’t all work out so well. I’ve had my failures, too, for sure.

But the real point here is, yes, stock markets are risky. It’s one of the hard truths of investing – reward needs risk.

But by investing over the long term, those risks are far more in my favour, so long as I diversify my portfolio and choose wisely.  

And that’s why I’ll continue to invest in good companies for the long term – after all, it’s the Foolish way!

The post How passive income helped me retire (really!) early appeared first on The Twelfth Magpie.

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Michelle Freeman holds shares in City Of London Investment Group. The Motley Fool UK has recommended City of London Investment Group. 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 shares are perky, up around 3.5% as I write, and why not? There’s a lot to like about the company, with the main attraction being the dividend yield, which runs close to 7%. However, I admit that dividends crossing the 7% threshold make me wary because high percentages can be a sign of operational problems ahead and the potential for a cut in the payout. In the case of CLIG, I think the payment looks sustainable because it’s backed by an enterprise that scores well against quality indicators, such as the return-on-capital figure running near 58% and the operating margin close to 37%.

Robust cash generation

On top of that, the company has a good record of delivering annual rises in operating cash flow, which provides decent support to both earnings and the dividend. Meanwhile, today’s share price around 397p puts the forward-looking price-to-earnings (P/E) rating at just under 12, which isn’t too demanding. But it gets better. Although the market capitalisation is £102m or so, the enterprise value is just 82m, suggesting a decent chunk of net cash on the balance sheet. If you discount that cash, the P/E rating falls further, and I think the firm looks like decent value.

However, today’s report reveals that the funds-under-management figure has been slipping, down almost 8% to £3.6bn compared to both the equivalent period last year and six months ago. The firm’s profit before tax is also down, coming in more than 21% lower than the year before. Chairman Barry Aling put the outcome down to weakness in the emerging and frontier market sectors, “together with a degree of ongoing asset re-balancing by some clients.” But he thinks the reduced figures mask gains the company made in the period attracting new funds to its developed and opportunistic value products, “which now represent 15% of the total asset base.”

Choppy emerging markets

I think investors can be a fickle lot, so it doesn’t surprise me that some have been running for the hills when the economic waters get a bit choppy. Mr Aling explained in the report that both emerging and frontier markets suffered falls of 15% and 16% during the company’s trading year. But I’m encouraged by the directors’ decision about the dividend, which suggests a reasonably optimistic outlook. They held the ordinary dividend at last year’s level and declared a special dividend “equivalent to one-half of the current annual distributions.” The ordinary and special dividends together make up that impressive 7% yield.

Mr Aling said the dividend decision demonstrates the directors’ confidence in the company’s recent “marginal recovery in financial performance” and also reflects the prudential capital structure of the balance sheet. The firm ended 2018 with almost £19m of cash in the bank. I like the look of CLIG and would be happy to add some of the shares to my portfolio today.

The post Why I think this quality 7% dividend yield is worth having appeared first on The Twelfth Magpie.

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Kevin Godbold has no position in any share mentioned. 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.

Dividend delight

Company dividends offer the antidote to today’s low interest rate world, if you are willing to take on a bit more risk. The FTSE 100 currently yields 4.01% and some individual companies generate far more than that. 

City of London Investment Group (LSE: CLIG) is a specialist emerging markets asset manager that manages a range of institutional products investing in closed-end funds. It is a relatively small, specialist operator with a market cap of £104m.

High income

Investment growth has been steady but not spectacular, with the share price up 61% over five years. The real reward comes from its generous dividends and since launch in 2006 it has delivered a total return of 377%. It currently yields a whopping 6.91% a year, covered 1.5 times by earnings, and growth investors can benefit by reinvesting those dividends.

Emerging markets are having a tough time, and it could get worse. Assets under management fell from £3.9bn to £3.8bn in the three months to 30 September, although emerging and frontier market outflows were mostly offset by developed market inflows.

Volatility cuts both ways

City of London Investment Group still posted a £2.2m profit and increased its dividend 8% from 25p to 27p a share. It currently trades at a modest valuation of 9.9 times forward earnings. This could be a way to play recent emerging market weakness and pocket a high yield.

FTSE 250 spread betting firm IG Group (LSE: IGG) has crashed from 870p to today’s 584p in just over a month, a drop of 33%, as Q1 2019 revenues fell due to lower stock market volatility and stiffer regulation from Europe. It now trades at an apparently bargain valuation of 11.2 times earnings, and I reckon the rewards now outweigh the risks.

Brexit fix

IG thrives on stock market volatility as that gives its trader customers a bit of red meat to sink their teeth into. However, markets were relatively calm in the three months to 31 August, hitting first-half revenues which fell 5% to £128.9m.

It was also hit by a move from the European Securities & Markets Authority (ESMA) to extend a prohibition on selling binary options to retail clients for a further three months from 2 October. This ban, introduced on 2 July, led to a significant drop in trading by IG’s UK and European clients, reducing historic revenues by around 10%. The abrupt exit of boss Peter Hetherington added to the uncertainty.

Good bet

IG is responding by shifting its focus to boosting the numbers of its ‘elective professional clients’, which may include sophisticated retail clients. Brexit has threatened its ability to offer regulated financial products in all EU member states, but a German subsidiary looks likely to solve that.

This could be an attractive buying opportunity, with the stock now offering a massive forecast yield of 7.4%, covered 1.2 times. My colleague Paul Summers says this looks like a great time to take a punt on IG.

The post Attention income seekers! These 2 overlooked dividend bargains yield 7% a year appeared first on The Twelfth Magpie.

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harveyj has no position in any of the shares mentioned. 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.

While the growth in the share price has been an impressive 123% over this period, generous dividends have made up the bulk of the return.

And I expect this trend to continue as the asset manager goes from strength to strength.

Building a reputation

Over the past decade, City of London has been making a reputation for itself as an emerging markets (EM) asset manager. The business is relatively small in comparison to some of its larger peers with just £5bn in funds under management (FUM) at the end of September, but the firm’s performance since its IPO shows that size is not holding it back.

Unfortunately, the one downside of specialising in EMs is that capital tends to be flighty. When the going gets tough, EMs are usually the first markets sold by investors and this has been precisely what has happened over the past few months. 

Outflows from EM funds all over the world have jumped, and City of London has not been able to buck the trend. According to figures out from the company today, FUM in the firm’s EM funds declined 5% between June and September. On the other hand, City of London’s developed market equity funds saw an increase in FUM of 20%. Overall, net inflows were positive at £8m although market movements caused the overall balance to decline by 2%.

In my opinion, this small change isn’t enough to upset the group’s potential for the full year. For fiscal 2019, analysts are expecting the company to earn 38.6p, which puts the stock on a forward P/E of 10.3, hardly a demanding valuation. In addition, the stock supports a dividend yield of all of 7.2%. These attractive valuation metrics are why I believe this is one of the best income stocks on the market today.

Development income

Another income play that has recently grabbed my attention is U and I Group (LSE: UAI). This property business is focused on buying and developing undervalued real estate assets, unlocking value from unloved and misused property. It currently has a pipeline of existing projects with a gross development value of more than £7bn.

Management believes that the company can produce development and trading gains of £50m per annum based on the current pipeline of projects, and the majority of this income will be returned to investors if history is anything to go by. U and I usually distributes any excess income to investors, which meant that last year investors received 20.7p per share, giving a dividend yield of 8.9%. 

For 2018, analysts have pencilled in a yield of 5.7%, but I believe this could be a conservative estimate. If the firm can hit its projected development profits target, the return could be closer to 7% according to my calculations. With this being the case, I believe it is indeed worth keeping an eye on what U and I has to offer to investors.

The post Some of the best 7%+ dividend yields the market has to offer appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. 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.

These shares have fallen by about 25% since the merger between Standard Life and Aberdeen Asset management completed in August 2017. With the stock now yielding 7% — often a warning sign of problems ahead — shareholders may be wondering how much further the shares will fall.

Standard Life Aberdeen has come up on my own value investing screens recently. I haven’t hit the buy button yet, but I am getting close. Today I’ll explain why I think these shares could offer serious value.

Two overlooked events

Things have changed since last year’s merger. One big change is that the group’s insurance business has been sold to FTSE 250 firm Phoenix, in a deal valued at £3.24bn. The sale saw Standard receive a 19.99% shareholding in Phoenix and a cash payment of £2.34bn.

Management intends to return a total of £1.75bn of this cash to shareholders, via £750m of buybacks and a £1bn B share scheme (worth about 34p per share in cash). In addition, Standard Life Aberdeen is left with a shareholding in Phoenix that’s worth about £1bn.

A second change is that in August, India’s HDFC Asset Management Company floated on the Bombay Stock Exchange. Standard has a 30% shareholding in this business, which was worth about £1.3bn following the flotation.

Too cheap to ignore?

If we deduct the value of the Phoenix and HDFC investment holdings from Standard Life Aberdeen’s £9.4bn market cap, we get a valuation of around £7.1bn for the group’s remaining asset management business.

This part of the business is expected to generate adjusted net earnings of over £700m this year, putting the shares on a 2018 forecast P/E of about 10, with an expected dividend yield of 7%.

Although the group is still struggling with fund outflows, I believe the shares are probably too cheap at this level. I may buy a few for my own share portfolio.

A small-cap alternative yielding 6%+

If you feel that large companies like Standard Life Aberdeen are hard to understand and slow to turn around, then you might want to consider City of London Investment Group (LSE: CLIG) instead.

Like Aberdeen Asset Management, this £109m group has historically focused on emerging markets. Results out today show that funds under management rose by 10% to $5.1bn last year.

Revenue was 8% higher at £33.9m, while pre-tax profit was 10% higher, at £12.8m. Shareholders will receive a total dividend of 27p per share, an increase of 8% from last year.

This payout gives the stock a dividend yield of 6.7%, underlying the group’s core attraction for investors.

An under-the-radar star?

Today’s results include a handy summary of the company’s performance since its flotation in 2006. The shares have risen by 123% from an issue price of 180p to 403p today. But regular generous dividends mean the total return to shareholders since listing is now 377%.

This is a very impressive performance over 12 years, in my opinion.

For income investors who are worried that they might miss out on capital gains, this proven small-cap performer could be worth considering. I’d certainly be happy to add these shares to my own portfolio.

The post How low can the Standard Life share price go? appeared first on The Twelfth Magpie.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Standard Life Aberdeen. 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.

Come on City

The specialist asset management group, which focuses on emerging markets and closed-end funds, announced a 10% rise in pre-tax profits of £12.8m, slightly lower than expected, while earnings of £10.1m were slightly ahead. Basic earnings per share (EPS) are expected to have risen 7% to 39.5p.

City of London is an attractive stock for income seekers and there was more good news on that this morning, with a 1p hike in the final dividend raising it to 18p, or 27p for the year, a rise of 8%. Dividend cover will be almost 1.5 times for the second consecutive year, above its rolling five-year target of 1.2 times. These positive numbers come despite the recent struggles afflicting emerging markets.

Nice discount

Brokers are impressed by the results, with Hardman and Co pointing out that City of London has proved to be more robust than rival emerging market fund managers, helped by good performance and strong client servicing. It also admired its valuation of 9.9 times earnings, which puts it at a discount to its peer group.

My Foolish colleague Rupert Hargreaves notes that it has no net debt and and £16.4m of cash, enough to cover the dividend for two-and-a-half years. I would also like to point out that it offers an appealing historical yield of 6.6% (forecast to hit 6.8%), while warning that further emerging market volatility could hit performance and drive outflows. Operating margins of 37.6% also encourage, so long as emerging markets hold up.

Viva Aviva

Insurance behemoth Aviva (LSE: AV) has also had a bumpy time lately, the stock trading 10% lower than one year ago, but just look what that share price slippage has done to its yield. The FTSE 100 stalwart now trades at a forecast yield of 6%, covered twice, making it one of the most enticing income plays on the index.

It falls short on share price growth, with today’s 492p just below its pre-crisis levels of a decade ago, when it topped 500p. It is up just 34% in the past five years, whereas a FTSE 100 tracker would have given you 38% over the same period. However, that generous income still gives it the edge, whereas the index currently yields just 3.84%.

Well covered

Peter Stephens reckons now may be the perfect time to buy into Aviva, with dividends expected to rise by 9.2% per annum in the next two financial years. Given current strong cover, that looks sustainable and management is keen to reward its loyal investors.

Aviva’s plan to spend £2bn of excess capital should reward shareholders with £600m in share buybacks, alongside £900m spent on cutting debt and £500m on bolt-on acquisitions. With City analysts forecasting EPS growth of a whopping 68% this year, followed by 8% in 2019, there is new life in Aviva.

The post This 6%+ FTSE 100 high yielder and 6%+ income stock could help you retire early appeared first on The Twelfth Magpie.

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harveyj has no position in any of the shares mentioned. 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.

More often than not, a high dividend yield reflects the market’s view that the payout is unsustainable. So, if you are looking for the best income stocks, it’s crucial to examine the sustainability of the dividend yield on offer.

Sliding profits

With a historic dividend yield of 7%, Low & Bonar (LSE: LWB) immediately looks attractive for income seekers. The big question is, can investors trust this payout?

According to the company’s half-year results for the six months to the end of May, which were published this morning, I’m inclined to believe that they can.

Even though the firm reported a 50% decline in underlying profit before tax, management at the performance materials group declared an interim dividend of 1.05p, unchanged year-on-year, based on the numbers. This might seem like a strange decision, but actually, the underlying business is relatively robust.

It’s all part of the company’s transformation programme. Management is trying to reposition the business for growth in a tight trading environment by doubling down on the areas where it has the most experience and advantage while selling off non-core divisions. Costs associated with the transformation are responsible for the drop in profit during the first half.

Even though EPS declined 49%, the dividend is still covered 1.3 times. What’s more, a keen focus on cash generation means Low & Bonar is on track to reduce net debt by £15m (just over 10%) by the end of the year — that’s on top of its dividend obligations.

These figures lead me to conclude that the dividend is safe for the time being. On top of Low & Bonar’s attractive yield of 7%, shares in the company trade at a tempting forward P/E ratio of just 7.

Slow and steady

City of London Investment Group (LSE: CLIG) manages closed-end investment funds for clients such as large pension funds. With £3.9bn of assets under management, the group is relatively small compared to fund management industry heavyweights.

Still, despite its size, it has been able to grow steadily over the past five years. From 21p in 2014, analysts are projecting EPS of 38p for 2018. Based on these numbers, shares in the asset manager are trading at a tempting forward P/E of 10.6, approximately 28% below the market median P/E of 14.8.

As well as the attractive valuation, City analysts have pencilled in a dividend per share of 27.2p for 2018, up 9% year-on-year, giving a dividend yield of 6.8%.

Not only is this distribution covered 1.4 times by EPS, but it is also backed up by City of London’s rock solid balance sheet. The company has no debt and £16.4m of cash, equivalent to 15% of its current market value, and enough to cover the dividend for two-and-a-half years. And if you factor cash into the group’s valuation, the shares are trading at a cash-adjusted forward P/E of 8.9.

So, if you are looking for a cheap, high-single-digit, sustainable dividend yield, I believe City of London is certainly worthy of further research.

The post Dividend stocks: Two 6%+ yielders I’m considering today appeared first on The Twelfth Magpie.

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• Forget meal deals! Here’s how £8 a day could be worth £357,000
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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 no share mentioned. 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.

Strong trading activity

The firm’s attractions are many, not least of which is the modest-looking valuation and a dividend that has risen almost 69% over the past five years. Today’s share price around 338p throws up a forward price-to-earnings (P/E) ratio close to 13 for 2019 and the forward dividend yield runs at almost 2.6% with the payment covered nearly three times by anticipated earnings. The valuation enjoys decent support from underlying assets with the price-to-tangible-asset value sitting near 1.9. I think that’s an encouraging showing on value metrics.

After the recent Carillion debacle, it’s tempting to view any firm trading in a similar area with suspicion and Henry Boot overlaps a little with Carillion’s previous construction activities. However, the difference in tone between the companies’ updates is enormous. During the last two months of 2017 Henry Boot saw strong trading activity in line with the trends witnessed earlier in the year. Deal completions were strong during 2017 and the pipeline of opportunities for 2018 and beyond is “buoyant”. The only slight negative is that the year-end valuation of the firm’s property portfolio came in below the directors’ expectations, despite gains on industrial properties. The directors put that down to a reduction in the values of mixed-use secondary retail properties.

Rapid project delivery

Nevertheless, chief executive John Sutcliffe pointed out that Henry Boot benefitted from strong demand for its residential schemes in 2017 and delivered several projects “more rapidly than anticipated,” which sounds like the opposite kind of operational performance to what Carillion delivered in its death throes. Mr Sutcliffe said of 2018 that he expects “a trading performance for the current year slightly ahead of management expectations.”

Institutional asset manager City of London Investment Group (LSE: CLIG) also updated the market today for the first half of its trading year to 31 December. The figures are good with funds under management up more than 8% at £3.9bn since the firm’s June year-end.

The main attraction of CLIG for me is the gargantuan dividend. Today’s 440p share price means the forward yield runs in excess of 6.5% for the year to June 2019, and we can pick up some of the firm’s shares on a forward P/E ratio of a little under 11. Given the company’s good trading, I think this valuation is undemanding. The directors reckon good operational performance in the first half of the trading year is down to “a combination of strong net asset value performance, discount narrowing and opportunistic participation in event-driven US situations.”

Interestingly, unlike Ashmore Group that reported to the market yesterday, CLIG underperformed with its emerging market strategy “due to widening discounts and an underweight to the Chinese IT sector which posted very strong returns.”  It’s hard for most investors to get every decision right. Yet the directors remain confident and pushed up the interim dividend by 12.5%.

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

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• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
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Kevin Godbold owns shares in City of London Investment Group but not in the other companies mentioned. 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.