Collecting a regular dividend cheque is one of the best parts of investing. That's why I'm always on the lookout for the market's best dividend stocks, such as companies like Redrow(LSE: RDW), which has a record of returning cash to investors.
Redrow has continued its record of cash returns today, hiking its interim dividend by 50% after completing a record number of homes during the first half of its financial year.
According to the group's interim figures, which were published this morning, profit before tax in the six months to December 31 increased by 26% year-on-year and revenue expanded 14% from £739m to £890m as the firm completed more units for sale and sold these at higher prices.
Legal completions in the period rose 14% to 2,811 while the average selling price hit £330,000 from the £303,000 in the year-ago period. With cash flowing into the company's coffers, Redrow was able to pay down £38m of debt during the six month period, reducing net debt to £35m. Management does expect a small increase in net debt during the second fiscal half, but the balance sheet can easily accommodate this with gearing of just 3% at the end of 2017.
With profits booming and debt contracting, management has decided that it's time to return more cash to investors. A 50% increase in the interim payout has been announced today to 9p per share, beating City forecasts, which were initially calling for a payout hike of 31%. If management goes on to increase the full-year payout by a similar amount, according to my calculations, the stock now supports a forward dividend yield of 4.2% with the payout covered more than three times by earnings per share.
And as well as this attractive dividend yield, according to current City forecasts the shares trade at a forward P/E of 7.2, although considering today's numbers, I wouldn't be surprised if analysts revise their growth forecasts higher in the months ahead.
Put simply, if you are looking for a cheap dividend stock with growth potential, Redrow ticks all the boxes.
Beating the competition
Another division champion I'm positive on the outlook for is Shoe Zone(LSE: SHOE). Shares in this footwear retailer have come under pressure over the past 12 months due to investor concerns about the state of the retail sector in general.
So far, it seems as if these concerns are overblown. At the beginning of January, the firm reported that revenue for the 52 weeks to September 30 had remained relatively constant and the most significant headwind was adverse foreign exchange movements. City analysts expect these headwinds to abate this year with earnings per share growth of 5% pencilled in for fiscal 2018.
This growth should underpin the firm's dividend payout which is currently 10.5p per share giving a dividend yield of 6.3% at current prices. What's more, the payout is backed up by nearly £12m of cash on the balance sheet. Last year this total distribution cost the company £9m, easily covered by the £11m in cash generated by operations.
So once again, if you're looking for a cash-rich dividend champion to add to your retirement portfolio, I believe Shoe Zone certainly deserves a second look.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Redrow. 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.