I’ve scoured the list of the largest FTSE companies that have raised their dividends every year for at least five years, and have also seen their share price rise over the same period.

It wasn’t an easy task.

Of the largest UK public companies, only a handful meet this strict criteria.

Growing dividends at the same time as growing profits is an exceedingly difficult thing to achieve.

Why? Well, if a business commits too much of its free cash flow to paying out dividends to shareholders, that money can’t be used to expand its business. It also can’t use that spare cash for investing in new technology or acquisitions. These moves can often boost revenues or profits.

But the companies that manage the task are going straight to the top of my watchlist. If I want to have enough cash to retire, I’ll need an ISA or SIPP stacked full of these compounding giants.

Growing by buying

Bunzl (LSE:BNZL) is not the kind of flashy stock beloved by forum posters who debate its price day in and day out. But it is a consistent and predictable profit-making machine.

The £10bn FTSE 100 industrials company sells its products in more than 30 countries. These products include medical gowns, disinfectants, and food packaging. By themselves, these may goods with low profit margins. But they make Bunzl an incredibly important supplier for thousands of businesses worldwide.

Bunzl also has a successful acquisition strategy, spending £4.5bn to buy up more than 190 smaller businesses since 2004.

Since 2017, net profits — also called a company’s “bottom line” — have grown by 90%.

So let’s talk about the dividends on offer here. WIth a share price of 2,492p at time of writing, and four payouts a year of 57.72p, that works out to a 2.15% dividend yield. It’s not a king’s ransom by any stretch.

But Bunzl has grown its payouts to income investors for more than 23 years! The share price is also 40% higher in the last five years.

While this is unlikely to light anyone’s world on fire, it has been consistent and predictable. For me, that’s crucial. I’ve wasted enough money on illiquid, lottery-ticket stocks to know the difference between promises and results.

Long-term strategy

As a long-term compounding growth investor I want to avoid FTSE companies with patchy or inconsistent records.

I have to think like Warren Buffett and remember that I’m buying a business — not just a story. This is in my mind every time I invest in dividend stocks and shares.

That high share price of almost £30-a-pop may put off newer or younger investors who are used to being able to buy fractional shares in low-cost broker accounts. I could consider this a downside, as it may deter fresh capital from coming into the business.

But as we heard from HMRC in October 2023, fractional shares don’t qualify for the tax advantages of being held in an ISA.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

I’m focused on steadily growing my net worth over the next 15 years or so before I retire. I’m not a joyless automaton, but I’ll leave my gambling to the odd bet on the football rather than risking my retirement cash.

The post FTSE dividend hero alert! I think I can retire on these UK shares appeared first on The Twelfth Magpie.

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Tom Rodgers has no position in any of the shares mentioned. The Motley Fool UK has recommended Bunzl Plc. 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.

British American Tobacco (LSE: BATS) is one of the only FTSE 100 shares that can be called a ‘dividend yield hero’.

I focus on these types of companies quite a lot. That’s because I want strong compounders for my Self-Invested Personal Pension (SIPP). Since it offers a 9%+ dividend yield, this stock seems to fit the bill.

One of the major things that British American Tobacco has going for it is a consistent dividend record.

The company has managed to grow its payments to income investors for the last 23 years in a row. That makes it one of only a handful of FTSE 100 stocks with this impressive record.

9% dividend yield for life?

The British American Tobacco share price has been hammered over the last year and a half, with markets repricing the stock down from $45 to just above $30. But as a consumer defensive business, British American Tobacco could attract more attention as the UK heads closer to a recession. Investors tend to shift out of riskier plays and into consumer defensives in uncertain economic times.

But readers will be here to focus on the 9.2% dividend yield, so let’s cover that in detail now.

In 2017, the company paid £1 per share in dividends. By 2019, that had more than doubled to £2.03 per share. This year, it expects to pay investors a total of £2.39 per share.

The company also recently restated its long-term strategy to pay investors 65% of profits as dividends.

Because so few UK stocks increase their dividend payments over more than two decades, it makes British American Tobacco quite an interesting stock to track.

FTSE 100 downsides?

We do need to mention the potential downsides to investing in 9%-yielding shares like British American Tobacco.

One thing that weighs on my mind is the pretty massive amount of net debt the company carries. At last count, in 2023, that stood at £38bn. Yes, it is lower than the £45bn pile in 2017, so debt has been coming down.

But with interest rates at historic highs, that means the interest payments on debt will be larger. Higher interest payments for large debt piles suck cash out of a business and can be a drag on profits.

There are also ethical considerations to be aware of for this stock. Personally, as a former smoker, I honestly wish I’d never started.

Rising concerns about young people getting hooked on vaping may add to jitters about whether to invest here, too. The company says it aims to sell £5bn-worth of these products by 2025.

Future promise

Let’s switch back to the company’s financial prowess for a moment.

The company forecasts that it will be able to generate £40bn of free cash flow over the next five years. To me, that looks like very good news for the dividend and the payout ratio.

It can be tricky when it comes to buying shares in a company that sells controversial products. Every investor will have to make their own judgement call. But that 9% dividend yield and 23-year history of upping payouts may be too juicy to ignore.

The post 9% yield FTSE 100 shares for my SIPP! appeared first on The Twelfth Magpie.

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Tom Rodgers has no position in any of the shares mentioned. The Motley Fool UK has recommended British American Tobacco P.l.c. 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.

I don’t normally buy high-yielding stocks for my investment portfolio. That’s because, quite often, a lofty yield is actually a sign that the company is in trouble.

There are a few UK high-yield stocks I’d be comfortable buying today however. Here’s a look at two such stocks.

A 6.3% dividend yield

One of my favourite high-yield shares is Legal & General Group (LSE: LGEN). It’s a FTSE 100 financial services company that specialises in insurance, investment management, and retirement solutions. At present, the stock offers a prospective dividend yield of around 6.3%.

Unlike many other British high yielders, LGEN actually has solid growth prospects. Over the long run, the company should benefit as Britons save and invest more for retirement – more assets under management should lead to higher levels of income. Meanwhile, as a leader in the corporate retirement solutions space, it should also benefit as companies move to de-risk their defined benefit pension plans.

Legal & General has put together a great dividend track record in recent years. Over the last decade, the company has increased its payout from 4.75p per share to 17.6p per share. Looking ahead, City analysts expect more dividend growth. This year, a payout of 18.4p per share is expected. It’s worth noting that unlike many other FTSE 100 companies, LGEN did not suspend, cancel, or cut its payout during Covid-19.

One risk to keep in mind is that L&G can be a volatile stock at times. Over the last decade, it’s had some massive share price swings.

I’m comfortable with the volatility however. I think the key here is to ignore the share price swings and focus on the big dividends the company is paying out.

A renewable energy stock with a big dividend

Another high-yield stock I like is Renewables Infrastructure Group (LSE: TRIG). It’s a FTSE 250 investment company that owns a portfolio of wind and solar farms across the UK and Europe. Its goal is to provide investors with steady dividends. The prospective yield on offer here is currently about 5.1%.

TRIG also has decent growth prospects. Renewable energy is an industry that looks set for enormous growth in the years ahead. At present, TRIG has a £2bn+ clean energy portfolio spread across 80 projects. So it looks well-placed to benefit from the clean energy revolution.

This stock has a solid dividend track record as well. Over the last five years, it has increased its payout from 6.2p per share to 6.7p per share. And like Legal & General, it didn’t cut its dividend during Covid-19. Analysts expect a payout of 6.76p for this year and 6.85p for next year.

A risk to consider here is that, as an investment company, TRIG sometimes needs to raise capital to fund growth. This activity can impact the share price because it dilutes existing shareholders’ holdings.

I’m comfortable with this risk however. Over the long term, I expect TRIG to generate solid total returns.

The post 2 UK dividend stocks that cost under £3 and yield over 5% appeared first on The Twelfth Magpie.

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Edward Sheldon owns shares of Legal & General Group. 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.

One thing investors often want to know is which stocks have the highest dividend yields. With that in mind, I thought I’d take a look at the highest-yielding shares in the FTSE 100 index right now.

Which FTSE 100 shares have the highest dividends?

To find out which FTSE 100 stocks have the highest yields at present, I sorted all of the stocks in the Footsie by their ‘rolling’ forward-looking dividend yields, using Stockopedia. Using a rolling yield is useful because every company has a different date for the end of their financial year. Looking at yield on a rolling basis provides a standardised measure of yield. I’ve listed the 10 highest-yielding stocks in the FTSE 100 below.

Source: Stockopedia. Data as of 27 May 2021

There are few things to understand about this list of high-yield stocks. First, dividend yields are constantly fluctuating as share prices move. The data above is accurate as of 27 May. Already, the yields will have changed. Second, some of these yields include ‘special’ one-off dividends.

Third, and this is important, dividends are never guaranteed. Companies can reduce, suspend, or cut their dividends at any time. Mining companies, in particular, have a habit of reducing their dividends when their profits fall. The data above is based on analysts’ estimates and these estimates can be way off the mark at times.

What to understand about high-yielding stocks

It’s also worth pointing out that, quite often, high-yielding stocks are not good long-term investments.

Often, a high yield is actually a sign that the company is experiencing challenges. What has happened is that smart investors have already sold the stock, pushing its share price down and its dividend yield up.

When companies are experiencing challenges, they often cut their dividends to conserve cash. This can hurt investors. Not only do investors face a lower level of income but they also tend to be hit with further share price falls.

This scenario is known as a ‘dividend trap’. Investors buy the stock because of its attractive high yield, but the yield is not sustainable and they end up getting hurt.

The best dividend shares

Ultimately, there’s a lot more to investing in dividend stocks than just looking for a high yield. It’s also important to look at:

• A company’s growth prospects – growth leads to higher profits which, in turn, leads to higher dividends.

• A company’s dividend coverage. This is the ratio of earnings to dividends. A high ratio means the dividend is more likely to be sustainable.

• A company’s balance sheet. Companies with a lot of debt sometimes cut their dividends so they can pay their interest.

• The stability of earnings. Companies that are highly ‘cyclical’ like miners and banks often cut their dividends.

The best dividend stocks tend to have stable earnings, strong growth prospects, and healthy balance sheets. These stocks might not have the highest yields. But over time, they tend to provide strong long-term total returns (dividends and capital gains) for investors.

The post What are the highest-yielding dividend shares in the FTSE 100? appeared first on The Twelfth Magpie.

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Edward Sheldon owns shares in Legal & General Group. The Motley Fool UK has recommended Admiral Group and Imperial Brands. 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.

One way of boosting a meagre State Pension would be to own shares in dividend-paying companies. These regularly return a percentage of their profits to their owners, allowing the latter to enjoy their golden years in a bit more comfort.

Unfortunately, not all such stocks are created equal. Today, I’ll highlight a few things that investors need to look out for. 

1. A very high yield

Big dividend stocks understandably appeal to those wanting to top-up the State Pension. The bigger the yield, the more money they’ll receive, right? Not necessarily.

A seriously-high yield — found by dividing the predicted total dividend by the share price and then multiplying by 100 — is usually a red flag. More often than not, it’s due to a fall in a company’s valuation. The yield is high because the dividend is now larger, at least relative to the share price. 

Generally speaking, it’s best to start asking questions of any company/share paying over, say, 5%. A lot more than this and it’s usually just a matter of time before management announces a cut.

The lesson here is clear — always look under the company’s bonnet first. Is trading poor? If so, are dividends likely to be paid while it turns itself around? If not, steer clear.

2. No growth

A lack of growth in the amount of cash returned to shareholders over the years is another potential red flag. After all, a rising dividend implies rising profits and confidence on the part of management; a stagnant dividend suggests a company is treading water. Even a long period of hikes is worth investigating further if these barely cover inflation and do little to supplement your State Pension.

This is not to say investors should panic if dividends don’t rise every year. Sometimes, a firm may simply want to invest spare money back into the business, perhaps to capitalise on a new growth opportunity.

A metric worth following over time is the extent to which a company’s dividend is covered by profits (otherwise known as ‘dividend cover’). Anything less than 1x cover for too long is a warning sign. Dividends covered twice by profits is ideal.  

3. Shaky finances

The coronavirus pandemic has served to remind investors that buying shares in highly indebted companies can be a risky strategy. This is particularly the case for those seeking to top up their State Pension via dividends. The latter are often the first thing to be sacrificed in troubled times as firms try to preserve cash.

Any debt-heavy company showering its shareholders with money should be avoided like the plague, in my opinion. The only exception might be if earnings are very predictable, such as those of a utility or pharmaceutical giant. Which brings me nicely to my final point for anyone looking to top-up a State Pension.

One final thing worth checking is just how cyclical a business is. Does it do well in times of economic prosperity and poorly in periods when people are tightening their belts? Clearly, any income from companies in this category is vulnerable, even if they look financially sound for now. Spread your money around or avoid them completely.

The post State Pension: if you’re buying shares to boost it, here’s what you need to know appeared first on The Twelfth Magpie.

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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.

While partial to a dividend as much as anyone, I think it’s preferable to look for companies with a long history (i.e. around 10 years) of consistently increasing their annual dividends, not those that pay the most. More often than not, the latter end up getting cut anyway. Let’s look at some examples of top-tier companies I think make the grade. 

Three hikers

Accountancy software provider Sage (LSE: SGE) is a consistent dividend hiker, having increased its payout every year for the last 10 years. That, for me, sends a clear message we’re dealing with a strong and stable performer, even if — at 2.5% — the yield won’t get many investors salivating.

Another thing worth mentioning about Sage’s income credentials is the fact its payout ratio — the proportion of dividend its pays out relative to earnings — is still pretty low at a little under 40%. That should mean there’s scope for the company to continue throwing more cash at shareholders in the future. 

The above, when coupled with Sage’s history of generating high returns on capital and big operating margins, lead me to think its current valuation — at almost 24 times earnings — isn’t unreasonable. Quality businesses rarely go on sale at bargain-basement prices. 

Paper provider Mondi (LSE: MNDI) is another firm that’s shown a willingness to lift the proportion of profit it distributes to shareholders. With one exception (2016), it’s increased its dividend every year in the last 10. Right now, it’s forecast to yield a good-but-not-excessive 4.5% in FY2019.  

That’s attractive in my view, especially as payouts look likely to be covered well over twice by profits. Again, to be clear, there’s really no point buying a high-yielding stock if it looks like it’ll ultimately struggle to pay out to shareholders. Mondi’s owners should be just fine for now. 

Like Sage, the £8bn cap achieves good returns on capital and fat margins. Unlike Sage, Mondi’s stock currently changes hands for less than ten times expected full-year earnings after falling just over 25% in value over the last twelve months. Although further dips can’t be ruled out as we approach our Halloween showdown with the EU, that already looks temptingly cheap.

A final FTSE 100 member worth mentioning is Unilever (LSE: ULVR). The owner of brands such as PG Tips, Magnum and Marmite may not generate much excitement among market participants, but the fact remains that — in addition to its defensive qualities — it’s long been a source of rising dividends.

The near-3% yield, adequately covered 1.5 times by profits, looks pretty safe to me and I suspect investors are less likely to ditch the stock in the run-up to Brexit than other stocks in the FTSE 100. Moreover, it’s worth mentioning that had you purchased the shares a decade ago, you’d actually be getting a far higher yield on your original investment, thanks to the 200%+ rise in the company’s share price since then. 

The only drawback to all this is that the predictability of Unilever’s earnings and its geographical diversification means the stock is nearly always expensive to buy. Right now, its price-to-earnings (P/E) ratio is 22 — slightly higher than its five-year average of 21. 

The post Forget the high yielders. I’d buy these 3 FTSE 100 dividend growth stocks instead appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended Sage Group. 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.