3 top dividend kings I’d buy and hold forever

Niche manager This company has carved out a niche for itself in the asset management business over the past 20 years managing sustainable funds, a rapidly expanding part of the market.

At the end of the first quarter, the company reported an increase in assets under management of 21% year-on-year to £12.7bn, with net inflows for the financial year to the end of March totalling £1.8bn. Considering the fact that the rest of the active asset management industry is struggling to attract assets away from passive fund managers such as Vanguard, these impressive fund flows stand testament to Liontrust’s investment proposition.

As the business has expanded, investors have been well rewarded. The stock has risen five-fold since 2012 as net profit has jumped from a loss of £4m to profit of £25m (estimated for 2019). At the same time, Liontrust’s per share dividend has risen from 1p to 21p and analysts are expecting this trend to continue, with dividend growth of 15% pencilled in for 2019, and 11% for 2020, giving the stock a 2020 dividend yield of 4%.

Supply vs demand Another firm that I think you should consider for your income portfolio today is homebuilder Bellway (LSE: BWY). With a dividend yield of 5% at the time of writing, this company immediately stands out as a dividend champion. What’s more, the payout is covered three times by earnings per share, and the enterprise has a zero debt, cash-rich balance sheet, which only adds to its appeal in my view.

The UK is facing a chronic housing shortage, and homebuilders like Bellway are struggling to match demand. It is unlikely this supply/demand mismatch will end any time soon and, as a result, I think it is highly likely that homebuilders will continue to churn out impressive profits for the foreseeable future.

I think Bellway is one of the best investments to play this trend because, not only does the stock support a dividend yield of 5%, it is also trading at a deeply discounted valuation of just seven times forward earnings compared to the sector average of 10.5. This valuation gap tells me investors could see both impressive dividends and capital gains in the years ahead. What’s not to like?

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Market leader The final dividend king that I think is worth buying and holding forever is M&C Saatchi (LSE: SAA) .

The best investments tend to have a strong brand and durable competitive advantages, and Saatchi is one of the most influential brands in the marketing world. This year, analysts are forecasting a 144% increase in earnings to 22p, which puts the stock on a forward P/E of 17. Earnings per share could expand a further 5% next year according to current City estimates, leaving the stock trading at a 2020 P/E of 16.1.

Saatchi stands out when it comes to the company’s dividend. Over the past five years, the dividend has grown at an average annual rate of 15% and has doubled since 2018. Right now the shares support a dividend yield of 3.2%, and the distribution is covered 1.9 times by earnings per share. According to these numbers, if the payout continues to grow as it has done during the past five years, investors buying today can look forward to a dividend yield of 6.4% by 2024.

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Liontrust Asset Management. 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.

Motley Fool UK 2019

First published on The Motley Fool