When it comes to dividend stocks, I like to prioritise shareholder income that is growing ahead of high yields.
And that’s because a company capable of growing its dividend will often have increasing revenues, earnings, and cash flow as well. And those conditions can lead to a rising share price on top of expanding shareholder income.
For example, I like the look of Coats (LSE: COA), the industrial thread and footwear component manufacturer.
In November 2022, the company delivered a third-quarter trading update that was “in line with full year expectations”. Organic revenue grew by 6% in the quarter and overall revenue rose by 14% up to the three-quarter point of the year.
We’ll find out more about recent progress with the full-year report due on 2 March. But City analysts have pencilled in an uplift in earnings for 2022 in excess of 20%. And they expect a further rise of just over 6% this year.
Cyclically sensitive
However, the business saw its earnings dip in the pandemic year of 2020. And that suggests vulnerability to the effects of economic cycles. But since then earnings have recovered well. And I’m optimistic the company has the potential to grow more in the years ahead.
Meanwhile, with the share price around 73p, the forward-looking earnings multiple is running near 10.5 for 2023. And the anticipated dividend yield is around 2.8%.
But the dividend is forecast to rise by 19% in 2023. And the compound annual growth rate of the dividend is running at 20%. So, despite the risks, I see that as attractive.
And I’m also keen on Hikma Pharmaceuticals (LSE: HIK), the company dealing with generic, branded and in-licensed pharmaceuticals products.
On 3 November last year, the directors reported “strong momentum in Injectables and Branded”. However, the Generics category has been suffering challenges. The company has been experiencing “low double-digit” price erosion and “mid-single-digit” volume shrinkage in its US generics business. But the directors reckon cost and efficiency improvements are helping the business to maintain “a healthy core operating margin in the mid-teens”.
Overall growth in earnings
Meanwhile, City analysts expect overall earnings to increase by around 13% this year. And my hope is that further growth will arrive in the years ahead. Although there is a risk that the problems with the firm’s Generics category may escalate. And there’s also a fair pile of debt to keep an eye on with this company.
Nevertheless, I’d be tempted to buy some of the shares now and collect the dividend while I’m waiting for further operational progress. And with the share price near 1,699p, the forward-looking yield for 2023 is running near 2.8%. That’s not the highest yield in the world. But the compound annual growth rate of the dividend has been running near 11%. And that’s strikes me as potential worth having in my portfolio.
The post 2 UK dividend stocks I’d buy today appeared first on The Motley Fool UK.
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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended Coats Group Plc and Hikma Pharmaceuticals Plc. 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.