These two dividend champions have turned £1,000 into £1,500 this year
Every investor wants an opportunity to get rich quick with little risk. Unfortunately, these opportunities are few and far between. Most of the time, an attempt to get rich quick by investing in some early-stage growth company just ends in tears.
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However, this year two UK large-cap dividend champions have produced some outstanding returns for investors with both capital gains and dividend income, proving there are opportunities out there to help you build wealth quickly without taking on the extra risk.
BP(LSE: BP) and BBA Aviation(LSE: BBA) have both returned around 50% this year including reinvested dividends. Will there be a repeat of this performance next year?
A bumper year
Heading into 2016, both BBA and BP had fallen out of favour with the market. Shares in BBA ended 2015 down 50% (excluding dividends) due to concerns about the company's acquisition of Landmark Aviation, funded by way of a £748m rights issue. Meanwhile, BP was suffering from the general malaise overhanging the oil market. Shares in BP ended the year down 17% excluding dividends.
As investors have regained confidence in BP's outlook, shares in the company have pushed higher this year steadily. Rising oil prices, as well as management's actions to cut costs, improve margins and sell off non-core assets, have helped rekindle confidence in the group's outlook. BP reported third quarter profits of $933m on an underlying replacement cost basis compared to $720m for the previous quarter and $1.8bn for the third quarter of 2015.
Including dividends, shares in BP have produced a total return of 46% year-to-date and while further capital growth depends on oil prices, the shares remain a top income pick. Shares in BP currently support a yield of 6.4%.
Further growth ahead
Shares in BBA have added 45% this year as the company has proved the doubters wrong about its Landmark acquisition. Revenue in the 10 months to the end of October rose 27% year-on-year, boosted by the acquisition of Landmark and by good organic growth in its Signature division.
For the first half of 2016 BBA reported a 51% increase in pre-tax profit to $106m and a 677% increase in free cash flow to $92m. For the full year, City analysts have pencilled-in pre-tax profits for the group of £190m, nearly two-and-a-half times higher than last year's figure of £80m. Further growth is expected for 2017 as synergies from the Landmark deal are realised. For full-year 2017 the City is expecting the company to report a pre-tax profit of £229m and earnings per share of 18.4p, up 18% year-on-year.
Based on this growth outlook, I believe BBA's shares could replicate their 2016 performance again next year. If you include BBA's dividend payouts to investors this year, the shares have produced a total return of 56%. At present, the shares support a yield of 3.5%, and the payout is covered twice by earnings per share.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended BBA Aviation. The Motley Fool UK has recommended BP. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
