A 9% yield? Here’s the dividend forecast for a gem hidden in plain sight
As income investors, sometimes we search too hard to find unusual dividend shares. Yet when considering the dividend forecast for a well-known FTSE 250 company, I realised there’s a lot of potential in stocks that already get a lot of publicity. Here are more details for investors to consider.
Forecasts indicate growth
I’m talking about Investec (LSE:INVP). The FTSE 250 firm is down a modest 7% over the past year, with a current dividend yield of 7.26%. The yield already makes it well above the 3.53% index average.
It typically pays out two dividends a year. The main one gets declared in May with the annual results, with the smaller one announced in November. For 2024, the payments were 19p and 16.50p, totalling 36.5p. For this year, the projected total is 37p. Next year it’s forecast to rise again to 41p and 44p in 2027.
I don’t think there’s much point trying to forecast beyond the next two years, given that the income potential relates mostly to how the company performs. Given the amount of uncertainty about the banking landscape years down the line, it’s tough to accurately predict how things could go.
If we assume that the share price of 489p stays the same, the 44p total payment for 2027 would give a dividend yield of 9%. Of course, the stock might be higher or lower for this time period. This will mean the yield could be greater than 9% or indeed less.
Backed up by drivers
When I consider the financials, the potential for dividend growth is definitely there. Last week’s latest full-year trading update detailed how adjusted operating profit is on track to grow by 5-12% versus the previous year.
Some might have been concerned that basic earnings per share are forecasted to drop by 30-36%. However, this is mainly due to the prior year being skewed by a significant net gain. This came from the implementation of the Wealth & Investment division coming together with Rathbones.
Interestingly, the South African business is expected to post 5% adjusted profit growth. This is good, as it reduces reliance on UK operations. The diversified revenue stream not only geographically but also from the different client segments (private, corporate and institutional) is another appealing reason why some might consider buying the stock.
Risk and reward
There are risks involved with Investec. The business isn’t investing heavily in new technology, in order to push customers to bank digitally as other UK banks do. This could come to be a problem, as other peers can achieve greater cost efficiencies from reducing manual touch points.
Despite this, I don’t see any immediate risk to the dividends in coming years. On that basis, I think it’s a good income stock for investors to think about.
The post A 9% yield? Here’s the dividend forecast for a gem hidden in plain sight appeared first on The Motley Fool UK.
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Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has recommended Rathbones Group 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.
