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What This Top Dividend Portfolio Is Holding Now: Lloyds Banking Group PLC, Royal Dutch Shell Plc And Direct Line Insurance Group PLC

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Temple Bar Investment Trust (LSE: TMPL) is on track for 31 consecutive years of dividend increases after lifting its latest interim payout by 3%. At a current share price of 1,210p, the trust is on a trailing yield of 3.2%.

Picking great dividend shares has helped Temple Bar outperform the FTSE All-Share Index over the past three, five and 10 years.

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I’m going to take a look at three of Temple Bar’s current favoured stocks: Lloyds Banking Group (LSE: LLOY) (NYSE: LYG.US), Royal Dutch Shell (LSE: RDSB)  and Direct Line Insurance (LSE: DLG).

Royal Dutch Shell

Temple Bar has a number of dividend “usual suspects” within its top 10 holdings, including GlaxoSmithKline, which recently announced a maintained Q3 dividend, and Royal Dutch Shell, which lifted its Q3 dividend by 4%.

The Anglo-Dutch oil giant has never failed to pay an annual dividend since the end of Word War II, and in the vast majority of years has increased the payout. In the Q3 results, management said: “We are on track for a programme of over $30bn of dividend distributions and buybacks for 2014 and 2015 combined”.

Analysts expect Shell to pay a full-year dividend of about 117p, giving a yield of just over 5% at a share price of 2,322p.

Direct Line Insurance

Direct Line is a less common top-10 holding among equity income funds, but Temple Bar has been invested in the company ever since it was demerged from the Royal Bank of Scotland in 2012. Temple Bar said at the time:

“Whilst we rarely invest in new issues we believed that an, ultimately, independent Direct Line operating outside of its erstwhile owner, the Royal Bank of Scotland could result in a number of operating efficiencies and consequently improve returns to shareholders”.

In the two years since flotation, Direct Line’s shares have risen from 175p to 278p, and the company has paid out 25p a share in ordinary dividends and 18p in special dividends. The group has also recently agreed the sale of its international division and says that “substantially all of the net proceeds [about 10p a share] will be returned to shareholders”.

Lloyds Banking

Lloyds and Royal Bank of Scotland, neither of which currently pays a dividend, are even less common holdings for equity income funds than Direct Line. Temple Bar has held Royal Bank of Scotland (currently one of its top-10 holdings) for some time, but has recently also built a position in Lloyds, as well as US company Citigroup — “two banks which have significantly restructured over the last few years, but which we believe have market positions and levels of profitability not fully reflected in their valuations”.

Lloyds is aiming to develop into a top dividend company once it gets regulatory permission to restart dividend payments. Capital “stress tests” may put a damper on a dividend for the current year (analysts are forecasting a token 1p a share); and investors may have to wait for 2015, for which the analysts have pencilled in a payout of about 3p, giving a yield of 3.9% at a current share price of 77p.

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G A Chester has no position in any shares mentioned. The Motley Fool UK has recommended shares in GlaxoSmithKline. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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