Merchants Trust (LSE: MRCH) has delivered 33 consecutive years of dividend increases, and carries a trailing yield of 4.8%. Picking great dividend shares has helped Merchants outperform the FTSE All-Share Index over the past three, five and 10 years.
Heavyweight high yielder GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US), biggest holding and top yielder Royal Dutch Shell (LSE: RDSB) and new buy Antofagasta (LSE: ANTO) catch my eye in Merchants’ portfolio.
Top FTSE 100 pharmaceuticals firm GlaxoSmithKline still does blockbuster drugs, but Merchants likes the way the company has been consolidating its global leadership positions in vaccines and consumer health, where there are “scale advantages” and “limited risk from generic competition”.
Earlier this month, Glaxo’s management set out its expectations for the reconfigured group. The Board anticipates an earnings decline in the current year at a percentage rate in the high teens, but expects to deliver a compound annual growth rate of mid-to-high single digits over the five-year period 2016-2020.
Management intends to peg the dividend at 80p a share this year and for the next two years. The payout equates to an annual yield of 5.5% for buyers of the shares at the current price of 1,442p. There’ll also be an additional 20p special dividend this year. From 2018, the prospects for dividend increases look good, if management delivers the mid-to-high single digits earnings growth it expects.
Royal Dutch Shell
Like Glaxo, oil supermajor Shell has put a near-term dividend increase on hold. The company has said it intends to pay an unchanged $1.88 a share this year — which may extend to next year, with management guiding on “at least that amount in 2016”.
At current exchange rates, the dollar dividend translates into a sterling payout of 121.3p, giving a yield of 6.1% for buyers of the shares at the current price of 2,000p.
The reason for the temporary halt to a dividend increase is Shell’s agreed £47bn acquisition of BG Group, announced last month. This deal is set to cement Shell’s leading position in the global LNG market and give the company a significant stake in attractive Brazilian assets. That should be good for shareholders’ dividends in the long run, and Merchants Trust is “supportive of the rationale for this deal”.
Merchants has taken a new position in low-cost copper producer Antofagasta, explaining:
“Copper is an attractive commodity as supply is limited and increasingly expensive to develop whilst demand is broadly spread. Over time supply constraints should lead to a price recovery from depressed levels. The company has one of strongest balance sheets in the sector and is reasonably priced”.
Antofagasta’s dividend yield is a lowly 1.75% in the current subdued environment, but the company has a history of regularly returning excess capital to shareholders via special dividends when business is booming. At the current depressed share price of 775p, the kind of payouts we’ve seen on occasions in the past — and may see again in the future when the copper price recovers — would equate to a yield of 8%-9% during those years.
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G A Chester has no position in any shares mentioned. The Motley Fool UK has recommended 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.