Dividends with potential to keep an eye on

Choosing the right Dividend has always been a mixture or in-depth analysis, market opportunity and a bit of luck the company reaches their financial goals. Below is a breakdown of two stocks that have a sound platform for potential growth. Below there’s a breakdown of the two stocks with analysis brought by Goldman Sachs and Morgans.

Harvey Norman Holdings Limited (ASX: HVN)

The first ASX 200 dividend share to look at is retail giant Harvey Norman. Shares are up 26% in three years, besting the market return. In contrast, the stock is down 12% in the last year, suggesting a lack of positive momentum.

It could be in the buy zone right now according to analysts at Goldman Sachs. Last week the broker reiterated its buy rating and $5.80 price target.

The broker likes Harvey Norman due to its belief that the company “has a greater preference within the boomer generation and a higher exposure to regional Australia.” Goldman believes this shields it from online disruption.

In addition, its analysts highlight that Harvey Norman has a strong property portfolio and that its shares trade on much lower multiples than peers.

A final positive is the generous dividend yields it is forecasting. Goldman estimates that Harvey Norman’s shares will provide fully franked yields of over 8% in FY 2022 and over 7% in FY 2023 and FY 2024.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Harvey Norman Holdings’ TSR for the last 3 years was 59%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

Wesfarmers Ltd (ASX: WES)

Another ASX 200 dividend share that is rated highly is Wesfarmers. It is the conglomerate responsible for a range of brands such as Bunnings, Kmart, and Officeworks. It also has a portfolio of industrial businesses, including a lithium mining operation.

Wesfarmers added in February “We announced a remarkable financial result in the first half, delivered against the backdrop of the most disruptive period of the pandemic so far, highlighting the strength of the Wesfarmers portfolio and the capacity of divisional teams to adjust rapidly to meet customer demand.” They continue, “We were pleased to report net profit after tax of $1.2 billion and a fully-franked interim dividend of 80 cents per share.”

The Morgans’ team also have some very favourable news on Wesfarmers and believes it has “one of the highest quality retail portfolios in Australia” and is run by “a highly regarded management team.”

Overall, the broker feels the company is well-placed for growth over the long term and has an add rating and $58.50 price target on its shares.

Its analysts are also expecting attractive dividend yields from the company’s shares in the coming years. Morgans’ is forecasting fully franked dividends per share of $1.62 in FY 2022 and $1.81 in FY 2023. Based on the current Wesfarmers share price of $49.39, this will mean yields of 3.3% and 3.65%, respectively.

Is Wesfarmers Using Its Retained Earnings Effectively?

The high three-year median payout ratio of 96% (or a retention ratio of 4.4%) for Wesfarmers suggests that the company’s growth wasn’t really hampered despite it returning most of its income to its shareholders.

Besides, Wesfarmers has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Based on the latest analysts’ estimates, we found that the company’s future payout ratio over the next three years is expected to hold steady at 86%. Therefore, the company’s future ROE is also not expected to change by much with analysts predicting an ROE of 31%.

You can have access to Harvey Normans and Westfarmers securities by opening a share portfolio account with us here, where give you access to the ASX 200 companies and receive $0 brokerage for your first 50 trades. You can also use the Share CFD MT5 platform here, which is potentially used for hedging any negative movements in the share price, whilst also be able to open positions on positive rallies.

Sources: Morgans, Yahoo Finance, Westfarmers, Simplywall.st, The Motley Fool, Goldman Sachs