Interactive Investor

Dividend investors like these three income shares

22nd February 2023 15:35

by Graeme Evans from interactive investor

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Each of these stocks, which pay generous dividends and are popular among investors, has published results today. Our City writer explains what makes them so attractive.

Three FTSE 100 shares to consider 600

Dividend cheer today included a bigger-than-expected payout by Rio Tinto (LSE:RIO), a 20% hike by Lloyds Banking Group (LSE:LLOY) and a FTSE 250 company’s 27th year of consecutive dividend growth.

The headlines in the mining sector have been dominated by the scaling back of dividends after record awards in 2021, a trend caused by lower iron ore prices in China’s Covid lockdowns.

This means Rio Tinto shareholders can expect to receive a much smaller final dividend of 225 US cents on 20 April, part of a total award of 492 cents across the year.

Rio’s overall total, which represents 60% of the company’s earnings, was still 2% more than City forecasts for a figure of around 482 cents and was well ahead of UBS estimates of 471 cents.

The $8 billion (£6.6 billion) dividend outlay compares with the record $16.8 billion in 2021, when Rio supplemented the ordinary dividend with a special dividend to reflect strong earnings and cash generation.

Those bumper returns lifted Rio’s dividend yield to 13.8% in 2021, although the mining giant still trades with a chunky 6% forward dividend yield, according to UBS forecasts, even after today’s dividend cut.

Meanwhile, Lloyds Banking Group today revealed capital returns of up to £3.6 billion in respect of 2022 trading - equivalent to more than 10% of its market capitalisation.

This includes plans for the 14 April payment of a final dividend of 1.60p a share, meaning a 20% increase in the total dividend for 2022 to 2.40p a share. A strong capital position is also allowing a share buyback programme of up to £2 billion.

Analysts at Jefferies said the Q4 results and forward guidance ticked the right boxes, but said a  capital ratio – a key measure of a bank's financial strength - of 14.1% meant the £2 billion buyback looked a little light. They said investors were left wondering what management may or not do with the £1.3 billion current excess.

One of the least surprising developments for followers of income stocks concerned the latest dividend hike by FTSE 250-listed Primary Health Properties (LSE:PHP).

The GP surgeries landlord, whose portfolio of 513 facilities is worth £2.8 billion, will pay its first quarterly dividend of 1.675p tomorrow.

This is equivalent to 6.7p on an annualised basis and a 3.1% increase over the 2022 dividend, extending its progressive payout policy to a 27th year.

Further dividend payments are planned to be made on a quarterly basis in May, August and November, comprising a mixture of property income distribution and normal dividend.

In terms of total shareholder returns, Primary Health said a five-year growth rate of 20% compared with a 16.1% decline for UK real estate equities and the FTSE All-Share Index at 15.5%.

Its performance was dented by a decline of 22.5% over the last year after shares fell from 151.4p to 110.8p as the recent surge in gilt yields diminished the investment appeal of real estate investment trusts.

The shares stood at 107.9p this afternoon, valuing the business at over £1.4 billion. That compares with an adjusted net asset value of 112.6p in today’s results. The recent fall for shares means Primary’s fully covered forward dividend yield stands at above 6%.

Primary is liked by income investors due to the predictable cash flows that underpin its progressive dividend policy.

Most of Primary’s facilities are GP surgeries, with other properties let to NHS organisations, HSE in Ireland, pharmacies and dentists. This means about 90% of rent is funded by the UK and Irish governments.

The rent roll increased 3.3% to £145.3 million in the last year, with more to come given inflationary pressures.

In the longer term, the ageing and growing demographic of the UK and Irish populations means that the health services in both countries will be called on to address more long-term, complex and chronic co-morbidities.

Chief executive Harry Hyman said: “Consequently, the government needs to respond and invest in new structures to deliver more healthcare in primary care and community settings and away from over-burdened hospitals.

“Primary Health Properties stands ready to play its part in delivering and modernising the real estate infrastructure required to meet this need.”

Broker Peel Hunt today highlighted a 130p target price after the annual results exceeded its expectations.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. 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.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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