Looking for great companies with a history of paying reliable dividends? Look no further than British American Tobacco (LSE: BATS) (NYSE: BTI.US), Diageo (LSE: DGE) (NYSE: DEO.US) and SSE (LSE: SSE).
These three companies all possess the same very special qualities:
- they’re among the biggest of the big: all in the top 30 of the FTSE 100;
- they’ve increased their dividends above RPI inflation each and every year since the turn of the millennium;
- they didn’t ask shareholders to stump up cash to bolster their balance sheets following the financial crisis;
- and they report and declare dividends in pound sterling, so dividends aren’t at the mercy of adverse exchange rates.
The table below shows the annual dividend growth for each company and the annual growth of RPI inflation.
| Year | BAT (%) | Diageo (%) | SSE (%) | RPI inflation (%) |
|---|---|---|---|---|
| 2000 | 10.7 | 7.7 | 7.0 | 3.0 |
| 2001 | 10.3 | 6.2 | 9.1 | 1.8 |
| 2002 | 10.0 | 6.7 | 8.0 | 1.7 |
| 2003 | 10.2 | 7.6 | 8.0 | 2.9 |
| 2004 | 8.0 | 7.8 | 7.7 | 3.0 |
| 2005 | 12.2 | 7.1 | 12.7 | 2.8 |
| 2006 | 18.9 | 5.2 | 9.4 | 3.2 |
| 2007 | 18.4 | 5.1 | 18.3 | 4.3 |
| 2008 | 26.4 | 5.0 | 10.0 | 4.0 |
| 2009 | 18.9 | 5.1 | 9.1 | -0.5 |
| 2010 | 14.8 | 5.5 | 6.1 | 4.6 |
| 2011 | 10.8 | 6.0 | 7.1 | 5.2 |
| 2012 | 6.6 | 7.7 | 6.8 | 3.2 |
How impressive are those dividend growth records? Very impressive, I think you’ll agree! Let’s have a look at what the three dividend super-stocks are offering new investors today.
British American Tobacco
British American Tobacco is the world’s most international tobacco group. BAT has a balanced geographical spread of markets, including good exposure to faster-growing emerging economies. The company hasn’t been entirely immune to the pressure on consumers’ pockets during recent years, but has still been able to increase its dividend well ahead of inflation.
Analysts are forecasting dividend growth to tick up again — to 7.5% — for the year ending December 2013. At a recent share price of 3,435p, BAT offers a prospective income of 4.2% — more than a percentage point higher than the forecast FTSE 100 average of 3.1%.
Diageo
Diageo is another global company with good exposure to emerging markets. The group’s impressive stable of leading alcoholic drinks brands has served it well through boom and recession alike. Indeed, Diageo has delivered the most consistent annual dividend growth of the three companies.
Happily, we can note that dividend growth has actually been ticking up over the last five years. Analysts expect the trend to continue and are forecasting 8.7% growth when the company announces its annual results next week, followed by 9.2% growth for the year to June 2014. However, at a recent share price of 1,963p, Diageo currently offers a below-market-average income of 2.6% based on the June 2014 forecasts.
SSE
In contrast to BAT and Diageo, SSE is a UK-focused company. What SSE has going for it is that as a regulated electricity utility it has some protection from the economic ups and downs that can cause havoc for dividends among companies in the free market.
SSE has an explicit dividend policy in which the target is “the delivery of annual dividend increases that are greater than RPI inflation”. Analysts are forecasting 4.3% dividend growth for the year to March 2014. At a recent share price of 1,612p, the prospective income is an electric 5.4%.
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> G A Chester does not own any shares mentioned in this article.
