Leading property, residential, construction and services group Kier (LSE: KIE), has hardly been the best stock to own over the past five years. Indeed, since summer 2012 shares in the company have returned a lousy 2.6% excluding dividends.
However, if you include dividends, the company's returns light up. Since summer 2012, the shares have returned around 23% including those payouts. This performance highlights the power of dividends, and with a yield of 5.5% at the time of writing, it looks as if Kier will continue to be an income champion for some time to come.
City analysts are expecting it to report earnings per share of 107p for the fiscal year ending 30 June, and according to a trading update from the company today, the group is on track to hit this target. Today's pre-close trading statement also proclaims that Kier is making real progress reinvesting in its operations and trying to increase value for shareholders. Net debt is expected to be £150m at the end of the year, and the lower end of market forecasts and cash generated of £69m during the year is projected to be reinvested in property and residential divisions. These two groups made a return on capital employed of more than 10% during the fiscal year making them by far the most profitable of the entire group.
Management's efforts to reduce debt and reinvest in the most lucrative business divisions should underpin further dividend growth. City analysts have pencilled-in earnings per share growth of 11% for the fiscal year ending 30 June 2018, and off the back of this growth, a dividend increase of 4.6% is expected.
If the company hits this forecast, the shares should yield 5.8% next year based on current prices. For value hunters, this income comes cheap as the shares currently trade at a forward P/E of 11.4, falling to 10.2 for next year.
Along with Kier, Redde(LSE: REDD) is another income champion you should consider for your portfolio.
the insurance services company has chalked up much better long-term returns than Kier, even without dividends. Over the past five years, shares in the company have returned nearly 1,500%. Including dividends, the return is closer to 1,700%.
Unfortunately, in the near term, further share price gains may be capped as shares in Redde currently look expensive trading at a forward P/E of 15.7. Still, for yield hunters, the stock looks attractive as it currently supports a dividend yield of 6.4%. Analysts have pencilled-in payout growth around 5% for the fiscal year ending 30 June 2018, giving an estimated dividend yield of 6.7%.
This payout is only just covered by earnings per share, but on a cash basis, it looks secure. During the first half, the firm generated just over £22m in cash from operations but the dividend cost only £15m, giving plenty of headroom for further payout growth.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.