The election shouldn’t bring too much in the way of excitement in equity markets. Everyone knows that – failing a monumental polling discrepancy that would render the entire industry not fit-for-service – Labour will be in power post 4th July.
That said, such events have the potential for volatility, and a solid set of dividend payers can help smooth out any bumps in the road.
Legal & General shares would have historically given us a head start in compiling a selection of FTSE 350 dividend payers. However, its recent capital management targets involved reducing dividend growth to a meagre 2% in the coming years. The shares have a healthy yield, but stunting dividend growth makes the stock less attractive, and it doesn’t make the cut on this occasion.
We explore three FTSE 350 dividend paying stocks that we feel offer not only healthy yields, but the opportunity for future dividend growth and capital appreciation.
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These three stocks also hold long-term potential and shouldn’t be viewed as a short-term trade.
NextEnergy Solar Fund
Yielding 10% and trading at a 29% discount to NAV, the NextEnergy Solar Fund Investment Trust should fare well in the coming weeks and beyond.
Over the past full-year period, the trust has expanded its portfolio of solar assets to 103 and increased installed capacity to over 1GW.
The big problem for the trust has been questions about the value of its portfolio of privately held solar assets during the higher interest rate environment.
We’ve selected NESF, yet there are a whole host of trusts with portfolios of renewable infrastructure that are facing the same problem.
The big attraction to the trust over its peers is its yield. High yields can sometimes be associated with distress. This simply isn’t the case with NESF.
In its full-year results released this week, the trust outlined a dividend that is covered 1.3x and grew 11% in the last year. An 11% dividend hike is not a move made by a board concerned about being able to maintain payouts.
The company has embarked on a capital management programme in the face of higher interest rates and has disposed of a number of assets, one of which provided a 100% valuation uplift on the balance sheet valuations. The proceeds of the capital recycling programme will be used to pay down short-term borrowings.
Download ‘5 Stocks that could benefit from a Labour government’ Special Report
A Labour government has also promised a big green agenda which will be generally supportive of the trust’s operations.
IG Group
IG Group provides tradeds with a trading venue for OTC derivatives, exchange-traded derivatives and stocks. It has global operations, trading under the brand IG as well as tastytrade in the US after acquiring the platform in 2021.
From a dividend perspective, IG has a 5.9% yield, which is covered 2.1x.
In recent years, the top line has grown steadily as the group wins new business and launches new offerings such as fully-managed smart portfolios and ISAs.
IG Group’s growth story is supported by solid fundamentals. In the third quarter ended 29 February, the number of new clients that traded for the first time increased to 18,000. This was higher than the previous quarter (16,600), and the same period a year ago (17,400). The key Active Clients metric for period was 266,800, an increase on the second quarter.
However, active clients are only one half of the story.
In times of volatility, IG’s account holders will have a greater propensity to place trades to take advantage of price fluctuations. A higher number of trades by its clients translates directly into higher revenue for IG. Thus, IG Group is a natural hedge against volatility.
In 2024 year-to-date, IG’s revenue is down 6% on the same period and the company has blamed ‘materially lower volatility’. Indeed, IG Group said the period year-to-date has seen the lowest volatility in the past five years.
Should financial market volatility heighten around the election, IG Group will be a beneficiary.
Download ‘5 Stocks that could benefit from a Labour government’ Special Report
AstraZeneca
AstraZeneca doesn’t pay a huge dividend. Its 2% yield isn’t anything to write home about. However, it has recently announced ambitious growth targets, which, if achieved, promise steady and measured dividend increases in the coming years.
In late May, the company set out plans to grow revenue to $80bn by 2023 as new blockbuster drugs are released to the market.
“In 2023 we delivered the ambitious $45 billion revenue goal set a decade ago,” said Pascal Soriot, Chief Executive Officer, AstraZeneca. “With the exciting growth of our innovative pipeline, which has the potential to transform millions of lives, we are now aiming for $80 billion by 2030.”
The company said they plan to ‘launch 20 new medicines by 2030, many with the potential to generate more than $5 billion’.
Should this goal be delivered – and there’s no reason to suggest it won’t – AstraZeneca’s current valuation is compelling.
AstraZeneca currently trades at 19x forward earnings. This may be considered a touch expensive compared to the benchmark, but this doesn’t take into consideration growth beyond next year.
The dividend was flat between 2022 and 2023 but the group increased payouts in 2024. The impact of capex and the pandemic slowed dividend hikes in recent year and investors will be encouraged to see the company return to the path of a dividend progression.
Download ‘5 Stocks that could benefit from a Labour government’ Special Report
Brokers generally have a favourable view of the stock with Berenberg recently upgrading their price target to 15,000p.
