Are these stocks REALLY dividend dynamos after today's news?

The Motley Fool
Burning question mark
Burning question mark

Construction giant Telford Homes(LSE: TEF) has popped 4% higher during midweek business following the release of a reassuring trading update.


The housing sector has been shaken by fears of tanking home sales in the wake of the Brexit referendum. But Telford Homes -- like many of its peers -- has put these fears to the sword, advising that "the board remains confident in the longer term housing market in non-prime London and has not adjusted the group's growth targets since the outcome of the EU vote."

Indeed, the capital city-focused homebuilder noted that sales activity has picked up during the past six weeks, and remains optimistic that the "long-term imbalance between the supply of homes and the demand for somewhere to live in non-prime areas of London" creates a bright future for the company.

Data surrounding the homes market continues to be erratic, but some shock was expected given the importance of June's vote for the British economy. Regardless, like Telford Homes itself, I believe the business remains a promising stock selection, with a combination of low interest rates and a longstanding housing shortage likely to keep supporting property values.

The adverse timing of development completions between April and September is expected to push earnings 9% lower in the year to March 2017, although a 25% bump is predicted in fiscal 2018 as the number of completions stride higher again.

Consequently Telford Homes is expected to lift last year's dividend of 14.2p per share to 15.4p this year and to 16.8p in 2018, projections that yield 5% and 5.5%. I reckon the housebuilder remains a sage pick for both growth and income investors.

About to stall?

At first glance Vertu Motors (LSE: VTU) may not be an obvious candidate for dividend chasers.

The company is predicted to pay out 1.4p per share to its shareholders during the year to February 2018, yielding 3%. This figure lags the London blue chip average of 3.5% by a little distance. And next year's projected dividend of 1.6p also falls short in this regard, creating a yield of 3.4%.

Still, many investors will point to Vertu Motors' dividend growth rates as reason to invest. If realised, this year's projection will mark a chunky 8% year-on-year improvement on 2015's 1.3p dividend. And 2018's reward will represent a 14% yearly increase.

While these projections are also well covered by projected earnings -- Vertu Motors sports dividend coverage of four times through to the close of next year, double the broadly-regarded safety mark of two times -- I reckon dividend growth rates may come under pressure in the longer term.

The copany advised on Wednesday that revenues had surged 17.7% between March and August, to £1.45bn, and that it has "not experienced any significant change in consumer behaviour" since the EU referendum.

But unlike Telford Homes, I believe it could see sales fall back over the next year and potentially beyond as consumers cap spending on discretionary big-ticket items like cars. While this isn't yet a given, in my opinion investors seeking stronger dividend prospects may be better off looking elsewhere.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Vertu Motors. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.