Where should dividend investors put their cash in 2017? In this article, I'll take a look at three stocks I believe could be rewarding buys for the coming year.
This insurer is on a roll
Shares of insurance group Aviva (LSE: AV) slumped after the EU referendum, despite the firm's assurance that Brexit would have "no significant operational impact". Aviva shares have since recovered some of their losses, but are still down by 8% so far this year.
This weakness seems unjustified to me. Aviva's turnaround under chief executive Mark Wilson has been disciplined and successful. The group has reported decent sales growth and strong cash generation, while the acquisition of Friends Provident has created attractive cost savings.
Aviva's dividend has much firmer foundations that it did a few years ago, in my opinion. This year's forecast payout of 22.7p per share gives a prospective yield of 4.7%, and should be covered more than twice by earnings.
The shares currently trade on an undemanding 2016 forecast P/E of 9.8. Earnings growth of 8% is expected in 2017, suggesting that the shares could extend recent gains. In my view, Aviva offers good value at current levels.
Is it finally time for a drink?
I own shares of Diageo (LSE: DGE) and would like to buy more. But the asking price has been too high for me to consider in recent months. Even for such a high quality business, a valuation of more than 20 times forecast earnings seems too much to me.
That's why I've been happy to see the value of my shares fall since October. I'm hoping for further falls in 2017, so that I can increase the size of my holding. At the current level of 2,050p, Diageo offers a forecast dividend yield of 3.1%, and trades on almost 20 times forecast earnings.
I prefer to buy dividend stocks when the yield on offer is at least as high as the FTSE 100 average, which is currently 3.8%. For Diageo to offer an equivalent yield in 2017, the firm's share price would have to fall to about 1,750p. That's about 15% less than today's price, but Diageo shares have fallen to this level twice in 2016. A repeat performance in 2017 is quite possible.
A property bargain?
Shares of commercial property group British Land Company (LSE: BLND) have fallen by 22% in 2016. June's referendum put a big dent in the firm's value, and the shares have yet to recover.
I think that this sell-off may have gone too far. Although British Land's net asset value did fall by 3% during the first half of the year, the group's shares currently trade at a 30% discount to their net asset value of 891p per share. This should provide a solid margin of safety against any further falls.
Investors shouldn't need to worry about debt either. British Land's loan-to-value ratio is fairly conservative, at 31.6%. The group's property portfolio is 98% occupied, with an average remaining lease term of nine years.
British Land offers a forecast yield of 4.9% for the current year. Although the commercial property market may remain uncertain, I think this company is well positioned to provide investors with a reliable long-term income.
Roland Head owns shares of Diageo and Aviva. The Motley Fool UK has recommended Diageo. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.