2015 has been another amazing year for income seekers, with UK dividends hitting a third-quarter record after rising 6.8% to £27.2bn, according to Capita Asset Services. But it hasn’t been all good news. A host of high profile FTSE 100 companies have slashed their dividends this year.
If Antofagasta, Centrica, Glencore, WM Morrison, J Sainsbury, Standard Chartered or Tesco are in your portfolio, you may be hurting right now. Dividend cuts don’t just torpedo your income, they also sink the company’s share price as well. In uncertain times, it is worth looking for companies that are committed to raising their dividends. Here are three of them.
Viva Life
Insurance giant Aviva (LSE: AV) is still a business in recovery and recent performance has been patchy, the share price is down 6% in the last year. Aviva was forced to take a knife to its dividend in 2013 but chief executive Mark Wilson has been working hard to restore its reputation since then, and the smooth integration of acquisition Friends Life is to his credit.
Aviva’s capital position looks reasonably strong which will hopefully prevent further nasty surprises: the insurer expects to obtain Solvency II approval in December 2015. Wilson is looking to make Aviva leaner, meaner and most important of all for dividend seekers, cash keener. The yield is already back up at 3.7% as he looks to make amends for the 2013 dividend disaster. With forecast earnings per share growth of 12% in 2016, loyal investors (which include me) are on course to celebrate income of 5% by the end of next year.
Flying Dividends
If you think that rate of dividend growth sounds impressive, stand by for Lloyds Banking Group (LSE: LLOY). This stock was a mighty dividend machine before the financial crisis, and it looks like it might be again. Right now, it yields a dreary 1% but that is set to explode into life as Lloyds looks to revive its reputation among income investors. The yield is forecast to hit 3.3% by the end of this year. By the end of 2016, it is forecast to hit 5.1%. Better still, Lloyds should be wholly back in the private sector by then.
It won’t all be plain sailing: EPS are forecast to fall from 8.43p this year to 7.85p in 2016, a drop of 7%. But Lloyds’ focus on the UK domestic market should give greater stability and generate lots of cash, making this one of my favourite stocks on the index, especially at 9.1 times earnings.
SSE Of Income
Electricity company SSE (LSE: SSE) has offered reliability in a turbulent world, having increased its dividend every year since 1992 at an annual compound rate of 10%. Management is struggling to fund this largesse now, as dividend cover drops below its long-term target of 1.5 times. This week it increased its interim dividend by a more modest 1.1% to 26.9p.
SSE has scaled back its ambitious target of above-inflation increases, but still aims to increase the dividend at least in line with RPI inflation (currently 0.8%). That said, I do worry about its long-term sustainability. Last year free cash flow didn’t cover dividend payouts, and that can’t last for long. At 6.08%, the yield is perhaps a little too juicy. Management remains committed to progressive dividends, but may struggle to fulfil its promises.
