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How Diageo plc Will Deliver Its Dividend

I’m looking at some of your favourite FTSE 100 companies and examining how each will deliver their dividends. Today, I’m putting drinks giant Diageo (LSE: DGE) (NYSE: DEO.US) under the microscope.

Dividend history

Diageo has one of the best dividend records around. Since the turn of the millennium the company has increased its dividend ahead of inflation each and every year. The table below shows the record of annual income growth shareholders have enjoyed.

Year Dividend
growth (%)
2000 7.7
2001 6.2
2002 6.7
2003 7.6
2004 7.8
2005 7.1
2006 5.2
2007 5.1
2008 5.0
2009 5.1
2010 5.5
2011 6.0
2012 7.7
2013 9.0

Dividend policy and prospects

Annual dividend increases averaged 7.2% between 2000 and 2005. You may have spotted that the rate of growth was not so high between 2006 and 2010; it averaged 5.2%. The growth in the latter period actually met the company’s policy at the time. That was to deliver annual increases of “about 5%”, the effect of which was to build dividend cover.

The situation changed after 2010. Within Diageo’s annual report for 2011, the board guided shareholders on the medium-term outlook for the business: average annual organic top-line growth of 6%, an improving operating margin and double-digit growth in earnings per share. Management said: “Achievement of these aims would underpin even stronger dividend growth”.

As you can see from the table, the rate of growth has been increasing since 2010, culminating in an uplift of 9% when Diageo announced its results last week — the largest increase seen during the past 14 years.

The chief executive said: “We remain on track to deliver our medium term guidance” — and City analysts have pencilled in dividend increases in excess of 9% for both 2014 and 2015.

Finally, I can tell you that Diageo is one of a select group of blue chips pinpointed as FTSE 100 winners by our top analysts within the very latest free Motley Fool report.

Our analysts believe this group of elite companies has what it takes to deliver superior long-term earnings and income growth. Such is their conviction about the quality of these businesses that they’ve called the report “5 Shares To Retire On“.

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> G A Chester does not own any shares mentioned in this article.