Centrica
With a headline yield of 4.8%, Centrica’s (LSE: CNA) appeal as an income stock is fairly evident. However, where it has real potential as an income play is through its scope to increase dividends over the medium term. Of course, Centrica recently cut its dividend by 30% and this now means that its shareholder payouts are covered around 1.5 times by profit. This means that they are sustainable and that there is scope for increases over the medium to long term.
In addition, Centrica also offers considerable upside, with its exploration arm having the potential to improve its performance via rationalisation and efficiencies, and deliver stronger bottom line growth over the long term than many of its sector peers.
Aviva
With inflation being zero at the present, any increase in dividends equates to a real terms rise in investor income. However, in the case of Aviva (LSE: AV), it offers superb dividend growth potential. That’s because it is expected to increase shareholder payouts by 41% over the next two years, which is a superb rate of growth and puts the company on a forward yield of 4.6%.
In addition, its merger with Friends Life should lead to even greater dividends in 2017 and beyond, as synergies are set to cause improved cash flow for the combined entity. And, with an even more dominant position in the market in which it operates set to result from the merger, now seems to be a great time to buy Aviva.
Glencore
Although Glencore (LSE: GLEN) is not renowned for being a top income play, the fall in its share price of 46% in the last four years means that it now trades on a yield of 4.1%. Certainly, the outlook for the commodity markets is somewhat downbeat, with their prices hitting multi-year lows and causing the outlook for the sector to be highly challenging. However, Glencore’s dividends are well covered by profit at over two times and, as such, it appears to be a very sustainable payout.
In addition, Glencore has sound finances and this could lead to acquisitions over the medium term. While this may not boost investor sentiment in Glencore, it could lead to greater bottom line growth and, crucially, a growing dividend over the medium to long term.
Santander
Santander’s (LSE: BNC) current yield of 3.2% may be somewhat disappointing compared to many of the higher yielding shares in the index. However, the bank has a very low payout ratio of just 41%, and this means that it could raise dividends significantly over the medium to long term – even if profitability does not rise at a rapid rate.
However, Santander’s bottom line is expected to grow at an excellent pace, with it set to rise by 15% this year and by a further 13% next year. As such, dividend increases are on the horizon, which makes now a great time to buy a slice of it.
Land Securities
Shares in Land Securities (LSE: LAND) are up by 89% in the last five years and, as a result, its yield has dropped to 2.6%. However, it remains a top income stock, since its bottom line is set to benefit from an improving outlook for the UK consumer and for the wider economy in general, which should allow it to post earnings growth of around 9% next year.
In addition, Land Securities has a relatively modest payout ratio (for a REIT) of 76% and this shows that its dividend growth should be strong over the medium term – even if profitability forecasts are downgraded somewhat. And, with a strong track record and a diverse and appealing property portfolio, Land Securities remains a great income stock to buy right now.
