2 top dividend stocks I'd buy in May
I've long talked up the brilliant investment potential of Card Factory(LSE: CARD), even as tricky trading conditions have forced share pickers to cast it off in recent months.
The FTSE 250 business plummeted in January when it released a profit warning due to increased pressure on margins. But since then the news flow has improved, and Card Factory also advised earlier this month that it plans to pay a special dividend at the mid-point of the current year.
The retailer remains enormously cash generative, and while conditions are difficult on the high street, its ongoing store expansion programme -- which saw it open 50 net new outlets last year -- is helping it to sell more and more cards. Its strategy of increasing the number of stores it operates is not the only reason to be cheerful as moves to improve its e-commerce proposition are also paying off handsomely.
Although Card Factory is expected to see earnings flatline in the year to January 2019, this is not expected to be prohibitive of further dividend growth and so an ordinary dividend of 14.6p per share is forecast by City analysts.
So even if the business only makes good on meeting the bottom end of a suggested 5p-10p per share special dividend at the half-year point, this still creates a gigantic 7.9% yield.
Looking further down the line, Card Factory is expected to step back into earnings growth with a 5% rise in fiscal 2020, a figure that also causes the Square Mile to predict an ordinary dividend of 15.8p. The yield stands at 6.4% but this forecast excludes the possibility of further special dividends being forked out, which is clearly still a very real possibility.
Card Factory isn't without its degree of risk, but I reckon a prospective P/E ratio of 13.1 times makes the retailer too cheap to miss right now.
Another dividend great
Profits have grown at a stratospheric rate at Unite Group (LSE: UTG) in recent times. And this has enabled dividends to balloon during this period as well, rising by more than 370% over that period too.
The stage would appear set for the FTSE 250 business to keep on delivering excellent dividend growth as well. With earnings expected to rise 13% in 2018, the full-year payout is predicted to leap again to 28.2p per share, meaning the forward yield jumps to 3.5%.
What's more, another anticipated 13% profits improvement next year means the estimated dividend rises to 32.4p. This moves the yield to a tasty 4%.
There's plenty of reason to expect Unite to provide ample shareholder returns long into the future as well. This is why Unite recently pledged to raise its dividend payout ratio to 85% from 75% previously, and it comes as no surprise as demand for student digs continues to surge. The company reported in February that reservations for the upcoming academic year stood at 75%, a record for that time of the year.
A forward P/E ratio of 23.4 times may be a little expensive on paper, but I believe Unite's solid long-term profits picture makes it worthy of a premium rating.
Royston Wild has no position in any of the 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.