Dividends are great -- I love dividends! They can go wrong, of course, when earnings contract and dividend payments have perhaps been made without sufficient foresight so have to be cut. That's what happened to Aviva(LSE: AV) in the latter stages of the financial crisis. Over two years it had to slash its annual payment -- from 26p per share in 2011 to just 15p by 2013.
But a good dividend provider shouldn't be judged on a short-term hiccup. And in my view, Aviva has dealt with the blow in exemplary fashion by focusing hard on rebuilding its balance sheet. By 2015 results time, chief executive Mark Wilson could say: "We have completed the fix phase of our transformation," adding "...our balance sheet is one of the strongest and most resilient in the UK."
Aviva's dividend was back up to 20.8p in 2015 for a 4% yield, with rises to 24p and 27p forecast for the next two years -- to yield 5.3% and 6% at today's 447p share price. I see Aviva as a great long-term dividend stock, and with the shares on P/E multiples of only around nine, I see a share price recovery coming too. That combination is why I bought some.
Cash from cash
The payment of bills and services is big business, though highly competitive. But PayPoint(LSE: PAY) has carved a niche as the country's leading payment collection network -- you'll see its signs at newsagents and stores all over the country, where you can pay bills, and pre-pay mobile and energy meters.
Strong earnings growth resulted in an impressive share price rise until late 2014, but a slowdown (a 7% drop in EPS is forecast for the year to March) has led to a share price fall of 10% over the past 12 months, to 761p. But that's helped boost the expected dividend yield, with this year's predicted 42p amounting to 5.6%, and it would rise to 6.4% by 2018 if current forecasts prove accurate. And as PayPoint is a cash-generative company, cover by earnings of around 1.3 to 1.4 times looks safe enough.
On top of that, EPS should start picking up again in the coming year, with the shares' P/E multiple dropping to 11 by 2018. Is this a smaller cap company that could become a multi-year cash cow? It's worth a closer look.
Looking for even smaller companies, I'm intrigued by Alternative Networks(LSE: AN). It's a firm with a market cap of around £170m that provides comprehensive communications and IT services to businesses -- telephony, network provision, mobile and so on. The share price has been a bit erratic. It dropped sharply in February on a warning over pressures on its mobile business, with profit likely to be impacted for the year to September. At 347p, the shares are down 23% over 12 months, but have managed a 40% rise in five years -- not the best in the market, but comfortably ahead of the FTSE 100.
Even with reduced forecasts suggesting a 7% drop in EPS this year, the shares are still on a relatively undemanding P/E of 13, dropping to under 12 on 2017 forecasts. More importantly in my view, with last year's results the firm reiterated its "intention to progress dividend payments towards 15% annual growth in the medium term, anticipating growth of no less than 10% per annum." That progressive dividend policy has seen payments rise from 10p in 2011 to 16.4p last year to yield 3.1%, with analysts expecting a boost to 5.4% this year followed by 6.2% in 2017.
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Alan Oscroft owns shares in Aviva. The Motley Fool UK owns shares of PayPoint. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.