When looking for dividend shares, I try to seek out the market’s best income stocks. What I am looking for is companies that can prosper in any market and economic environment.
As might be expected, there are not many of these businesses. However, two companies stand out to me as being built to stand whatever the market can throw them.
The best dividend shares
The two companies are Plus500 (LSE: PLUS) and IG Group (LSE: IGG). I have been incredibly impressed by these firms over the past decade, as they have grown to become some of the most successful financial institutions listed on the London market.
At their core, both Plus and IG allow investors to take leveraged bets on financial markets with spread betting and CFD products. By using hedging strategies, these companies essentially remove all the risk on their side from the transaction. As a result, they should, in theory, generate profits in all market environments.
That is the theory. In practice, on a couple of occasions, these companies have missed a beat and incurred losses. There will always be a risk that this will happen again, no matter how much time and effort Plus500 and IG spend trying to make sure it does not. As a result, these corporations may not be suitable for all investors.
However, both businesses are now diversifying, and this growth potential is the main reason I would buy both stocks.
IG is making strides in the stockbroking market. It is expanding both here in the UK and its international markets. Meanwhile, Plus is pursuing a growth strategy in the United States. It recently acquired a commodities broker across the pond to increase its footprint.
Plus500 is aiming to become a “global multi-asset fintech group.” To that end, the firm has been investing heavily in R&D as well as going on a hiring spree to boost the size of its technical team.
These initiatives are yielding results. According to its third-quarter trading update, the group onboarded a total of 26,169 new customers in the period, taking the total number of active customers to 166,310. That is slightly down from 2020’s level of 197,976, but above the pre-pandemic level of 110,939 active customers.
The average revenue per user during the third quarter increased by 16% to $1,271. That is substantially above the $1,093 reported for the same period last year.
Income stocks for growth
What I like about both Plus500 and IG is the fact that their business models are highly cash generative. This means they can afford to pay attractive distributions to investors.
Shares in Plus yield 4.3%, and the payout has more than doubled over the past five years as the corporation has grown. IG offers a yield of 5.3%, and I think this distribution could increase as the company invests in growth.
I would buy both of these companies for their dividends and dividend growth potential as earnings expand. Still, there are some risks I will be keeping an eye on. These include additional regulations, which could increase costs. Competition may also force both organisations to increase marketing spending and reduce cash distributions.
Rupert Hargreaves 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.
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