Dividends make an enormous difference to investment returns, especially if they are reinvested in more shares -- in fact, they can easily turn a good return into a multibagger one. But a big dividend today is no good if it's unsustainable in the long term and likely to be cut back in the future.
Today I'm looking at two that I think should provide steady streams of income for many years, from two very different sectors.
Dividend safety is one of my key requirements, and I reckon there's a reliable one to be had from car dealer Pendragon(LSE: PDG). The firm, which sells new and second hand vehicles, and offers repair services, has seen its share price going through a tough patch over the past couple of years, and it took a dive as a result of 2016's Brexit referendum result -- a dip from which it hasn't fully recovered, though many others have.
Today, at 32.75p, the shares are trading on a forward P/E of only around 8.3, and for 2018 it would drop as low as 7.7 -- only around half the long-term rating for the FTSE All-share index. That would be understandable for a company that's struggling -- but Pendragon isn't.
In fact, 2016 showed a 5.4% rise in underlying earnings per share, and though it's predicted to remain flat this year, we have 7% growth in EPS pencilled-in for 2018. And chief executive Trevor Finn told us: "We believe that we can achieve at least double-digit growth in used revenue in 2017 and our aspiration over the next five years is to double our used vehicle revenue."
And the dividend? It was hiked by 11% in 2016, and the company is pursuing a £20m share buyback programme and a "progressive dividend policy". The forecast yield for 2017 stands at 4.5%, rising to 4.9% in 2018, with cover by earnings of an impressive 2.5 times.
To me that looks like a cheap share, and a strong and safe dividend.
A cheap fund manager
Switching to my second choice, I can't help thinking Jupiter Fund Management(LSE: JUP) has been performing very well in recent years. It's certainly ahead of some of its peers, like Aberdeen Asset Management, which has suffered from three years of declining earnings due to its emerging markets focus.
Over the past five years, despite market turmoil, Jupiter has been growing its earnings nicely, and City analysts are expecting that to continue this year and next -- and they're predicting tasty dividend yields of better than 6%.
Admittedly, underlying earnings per share rose by only 1% and net inflows in 2016 slumped by 90% to £1bn in a "challenging" year. But chief executive Maarten Slendebroek reckoned that was "a good result in a year when many active managers suffered net outflows," and I agree. We also saw assets under management rise in value by 13%, and the firm was able to increase its net management fees by 10%.
Importantly, shareholders enjoyed a 7% rise in total dividends, to 27.2p, and forecasts suggest steady rises for this year and next too -- to yield 6.2% in 2017 and 6.5% in 2018.
I reckon Jupiter's overall performance, both last year and over an impressive track record, should attract cash in the coming years, and I see inflow growth rebounding. And that should help secure those big dividends.
Do you want to be a dividend millionaire?
Did you know that reinvesting dividends can even multiply your returns to millionaire levels? That's right, by investing in great shares and using the compounding effect of reinvestment, accumulating a million is an achievable goal.
Don't believe me? Check out the Fool's 10 Steps To Making A Million In The Market report and see for yourself how, by following a series of simple steps, you can work your way to an impressive amount of dosh. Yes, you really can beat the professionals at their own game.
It won't cost a single penny of your savings to get yourself a copy, so just click here now for your completely free report.
Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended Aberdeen Asset Management and Pendragon. 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.