You’d be hard pushed to find a savings account today that offers more than 2% a year in interest. With this being case, if you have £1,000 in savings, it could be better for you to invest this money, rather than leave it languishing in the bank.
Here are three cheap, blue-chip dividend stocks that could help you get more out of your money.
Insurance income
Insurance can be a lucrative business as Direct Line‘s (LSE: DLG) shareholders know all too well.
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However, the business can also be unpredictable. Operating profit declined 16% in the first half of 2018 thanks to a spike in insurance claims due to the unpredictable weather. Because of this uncertainty, investors have pushed the share price down. Today the stock is changing hands for just 11 times forward earnings.
Still, what the firm lacks in predictability, it more than makes up for in profitability. Direct Line’s return on equity hit 17% last year, putting in the top 25% of the market’s most profitable companies.
And because insurance businesses need almost no capital investment, the company can return almost all net profit to investors. Last year it paid a dividend of 6.2p per share. This year, analysts have pencilled in a per share distribution of 28p, giving an estimated dividend yield of 8.6% — a yield that’s too good to pass up in my view.
Merger stumble
At the end of last month, my colleague Roland Head labelled IT group Micro Focus International (LSE: MCRO) one of the 3 worst dividend stocks of 2018.
It’s easy to see why. After shelling out $8.8bn to buy the software business of Hewlett Packard Enterprise, growth has evaporated. In March, the firm told investors that sales would drop by nearly 10% for the year, four times faster than expected.
Nevertheless, Micro Focus’s dividend seems safe. City analysts have revised their growth forecasts for the company lower, but even on these lower numbers, it looks to me as if there’s plenty of room to maintain the current payout.
It’s expected to print EPS of $1.87 this year, with a dividend of about $1 per share. These figures put the stock on a forecast P/E of 8.2 with a prospective dividend yield of 6.4%. It appears as if all the bad news is already reflected in Micro Focus’s share price. Now could be the time to buy.
Conservative attitude
Homebuilder Barratt Developments (LSE: BDEV) nearly didn’t survive the financial crisis. Ever since the company’s run-in with death, management has prioritised fiscal responsibility.
In my view, this conservative attitude makes the company one of the best dividend stocks in the FTSE 100. After cutting its dividend during the crisis, Barratt didn’t restore the payout until 2013. Debt reduction had been the priority until this point. Around the middle of 2014, the firm finally cleared all of its debt and moved to a net cash position, which it has maintained ever since.
At the same time, it has been able to profit from the UK’s booming housing market. Net profit has risen 10-fold since 2012, and the dividend has also risen 10-fold since it was reinstated.
The payout is expected to nearly double again for full-year 2018 to 43p and remain around this level for 2019. Based on these forecasts, the shares currently yield 8%. EPS of 68p are predicted for 2019. This puts the company on a forward P/E of 8.
