The Magic Multibagger | 2 great ‘safety’ stocks for dividend investors

2 great ‘safety’ stocks for dividend investors
Dividends make an enormous difference to investment returns, especially if they are reinvested in more shares — in fact, they can easily turn a good return into a multibagger one. But a big dividend today is no good if it’s unsustainable in the long term and likely to be cut back in the future.

Today I’m looking at two that I think should provide steady streams of income for many years, from two very different sectors.

Motoring success

Dividend safety is one of my key requirements, and I reckon there’s a reliable one to be had from car dealer Pendragon (LSE: PDG). The firm, which sells new and second hand vehicles, and offers repair services, has seen its share price going through a tough patch over the past couple of years, and it took a dive as a result of 2016’s Brexit referendum result — a dip from which it hasn’t fully recovered, though many others have.

Today, at 32.75p, the shares are trading on a forward P/E of only around 8.3, and for 2018 it would drop as low as 7.7 — only around half the long-term rating for the FTSE All-share index. That would be understandable for a company that’s struggling — but Pendragon isn’t.

In fact, 2016 showed a 5.4% rise in underlying earnings per share, and though it’s predicted to remain flat this year, we have 7% growth in EPS pencilled-in for 2018. And chief executive Trevor Finn told us: “We believe that we can achieve at least double-digit growth in used revenue in 2017 and our aspiration over the next five years is to double our used vehicle revenue.“

And the dividend? It was hiked by 11% in 2016, and the company is pursuing a £20m share buyback programme and a “progressive dividend policy“. The forecast yield for 2017 stands at 4.5%, rising to 4.9% in 2018, with cover by earnings of an impressive 2.5 times.

To me that looks like a cheap share, and a strong and safe dividend.

A cheap fund manager
Switching to my second choice, I can’t help thinking Jupiter Fund Management (LSE: JUP) has been performing very well in recent years. It’s certainly ahead of some of its peers, like Aberdeen Asset Management, which has suffered from three years of declining earnings due to its emerging markets focus.

Over the past five years, despite market turmoil, Jupiter has been growing its earnings nicely, and City analysts are expecting that to continue this year and next — and they’re predicting tasty dividend yields of better than 6%.

Admittedly, underlying earnings per share rose by only 1% and net inflows in 2016 slumped by 90% to £1bn in a “challenging” year. But chief executive Maarten Slendebroek reckoned that was “a good result in a year when many active managers suffered net outflows,” and I agree. We also saw assets under management rise in value by 13%, and the firm was able to increase its net management fees by 10%.

Importantly, shareholders enjoyed a 7% rise in total dividends, to 27.2p, and forecasts suggest steady rises for this year and next too — to yield 6.2% in 2017 and 6.5% in 2018.

I reckon Jupiter’s overall performance, both last year and over an impressive track record, should attract cash in the coming years, and I see inflow growth rebounding. And that should help secure those big dividends.

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The Magic Multibagger

Here we are going to share Top 10 Stocks with you according to a strategy  which is endorsed by Warren Buffet, written in “the little book that beats the Market” by Joel Greenblatt. Joel Greenblatt runs a hedge fund named Gotham Capital and has compounded capital at 40% for 20 years from 1985 to 2006.

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