Is Savills (LON:SVS) a Strong Income Play Amid Dividend Hikes and Strategic Expansion?

Savills (LON:SVS), a global leader in real estate services, has long been a staple for income-focused investors. With a history of dividend growth, a resilient earnings model, and a strategic pivot toward less cyclical business lines, the company appears to balance income generation with long-term value creation. However, its current valuation and market dynamics raise critical questions: Is Savills a compelling income play in 2025, or does its recent performance signal caution?

Dividend Sustainability: A Conservative but Cautious Approach

Savills' dividend policy has evolved significantly over the past five years. From 2020 to 2023, the company navigated pandemic-driven volatility, with a 36% drop in aggregate dividends in 2023 due to weaker transactional performance. However, 2024 and 2025 have seen a recovery, with the 2025 interim dividend up 4.3% to 7.4p per share. Crucially, the dividend payout ratio in 2025 stands at 31.47%, well below the 2.3x cover target the company has set for sustainability. This conservative approach ensures the dividend is well-supported by earnings per share (EPS) of 6.8p in H1 2025, even as the company maintains a yield of 0.96%.

The company's focus on maintaining a buffer—rather than chasing aggressive payout increases—reinforces its commitment to shareholder returns without overexposing itself to earnings volatility. For income investors, this suggests a stable, if not explosive, dividend trajectory.

Earnings Resilience: Diversification as a Shield

Savills' earnings resilience in 2025 is underpinned by its strategic shift toward less transactional businesses. These now account for 67% of group revenue, with consultancy and property and facilities management growing by 20% and 5%, respectively. This diversification has insulated the company from the volatility of transactional markets, which saw a 2% growth in 2024 but faced Q2 headwinds from geopolitical uncertainties.

The company's geographic footprint also plays a role. While North America declined by 6%, EMEA and APAC delivered 9% and 5% growth, respectively. High-profile deals, such as advising on a €1.2 billion student accommodation portfolio, highlight Savills' ability to capitalize on niche sectors like logistics and residential services.

Strategic Expansion: Building for the Future

Savills is not resting on its laurels. The acquisition of Aldhorn King in Northern Ireland and the consolidation of its Indian consultancy business signal a proactive approach to market share expansion. Additionally, the company is doubling down on industrial and logistics sectors, aligning with global trends like e-commerce growth and supply chain reconfiguration.

Leadership continuity, with CFO Simon set to succeed CEO Mark Ridley in 2026, further stabilizes the strategic direction. This ensures that Savills' 170-year heritage of adaptability will persist, even as it navigates macroeconomic headwinds.

Market Undervaluation: A Buying Opportunity?

Despite these strengths, Savills' stock has underperformed, with a 23% decline over the past year. As of August 2025, the stock trades at a P/E ratio of 24.31 (trailing) and 12.18 (forward), alongside an EV/EBITDA of 7.3x. These multiples are below industry averages for real estate services, suggesting undervaluation. Analysts like Spark (TipRanks' AI Analyst) have labeled the stock an “Outperform,” citing its strong commercial pipelines and dividend resilience.

However, the stock's volatility—exacerbated by insider selling of £142.4 million in the last quarter—raises questions about short-term sentiment. Yet, for long-term investors, the combination of a 0.96% yield, a 10% underlying profit growth in H1 2025, and a forward P/E of 12.18 may represent an attractive entry point.

Investment Thesis: Balancing Risks and Rewards

Savills is a mixed bag for income investors. The dividend is sustainable, but its yield is modest compared to high-yield alternatives. Earnings resilience is strong, but the company's exposure to transactional markets remains a risk. The undervaluation is compelling, but macroeconomic uncertainties—such as interest rate volatility and geopolitical tensions—could delay a re-rating.

For investors prioritizing income and long-term growth, Savills offers a balanced profile. The company's focus on non-transactional services, geographic diversification, and conservative dividend policy create a stable foundation. However, patience is key: the stock's current valuation may reflect a temporary discount rather than a fundamental flaw.

For risk-averse investors, the 31.47% payout ratio and 2.3x cover target provide a margin of safety. The company's ability to navigate downturns—such as the 2023 slump—demonstrates its adaptability.

For growth-focused investors, Savills' strategic expansion into logistics, residential services, and ESG-aligned real estate positions it to benefit from long-term trends. The challenge lies in converting these opportunities into earnings growth.

Conclusion: A Buy for the Long-Term Income Investor

Savills is not a high-growth stock, but it is a durable income play. Its dividend sustainability, earnings resilience, and strategic alignment with structural trends make it a compelling option for investors seeking a stable, undervalued real estate services company. While short-term volatility persists, the fundamentals suggest that Savills is well-positioned to deliver consistent returns over the next decade. For those with a 5–10 year horizon, the current valuation offers a compelling entry point.