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Diageo plc’s Dividend Prospects For 2014 And Beyond

Many top FTSE 100 companies are currently offering dividends that knock spots off the interest you can get from cash or bonds.

In this festive series of articles, I’m assessing how the companies measure up as income-generators, by looking at dividends past, dividends present and dividends yet to come.

Today, it’s the turn of drinks giant Diageo (LSE: DGE) (NYSE: DEO.US).

Dividends past

The table below shows Diageo’s five-year earnings and dividend record.

  2008/9 2009/10 2010/11 2011/12 2012/13
Statutory earnings per share (EPS) 64.6p 65.5p 76.2p 77.8p 99.3p
Dividend per share 36.1p 38.1p 40.4p 43.5p 47.4p
Dividend growth 5.1% 5.5% 6.0% 7.7% 9.0%

As you can see, Diageo has delivered good dividend growth over the last five years, and the rate of growth has accelerated year on year. The average annual increase comes out at 6.7% — well ahead of inflation.

A total of 205.5p a share paid in dividends during the period was covered 1.9 times by total statutory EPS of 383.4p. For the latest year (2012/13), statutory EPS cover was 2.1, while cover was just a tad higher based on Diageo’s underlying EPS number of 104.4p.

A solid dividend performance through difficult economic times, continuing a long history of annual dividend increases, and showing the drinks company’s valuable ‘defensive’ qualities.

Dividends present

Diageo has an unusual 30 June financial year-end. As such, the 2012/13 results are in, but the 2013/14 year isn’t yet underway as far as dividends are concerned.

At a share price of 1,922p, Diageo’s 2012/13 dividend of 47.4p represents a yield of 2.5% — not the highest around, due to investors’ willingness to pay a premium for the company’s exemplary record of increasing the dividend through good times and bad.

Dividends yet to come

Analysts see further high single-digit dividend growth for 2013/14, with the payout rising to 51.4p. The consensus forecast for underlying EPS is around 110p (up 5% on 2012/13’s underlying number); and dividend cover remains above two.

Looking ahead to 2014/15, the analysts see another high single-digit dividend increase, with a payout of 56.3p penciled in. The consensus EPS forecast is for a 10% rise to around 120p; and, again, dividend cover remains above two.

Shareholders can be optimistic about dividend progress well ahead of inflation, although the current running growth rate of 9% is a little above the company’s long-term historical average of around 7%.

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 in this free Motley Fool report.

Our analysts believe this small 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.