3 top dividends for the next decade: Lloyds Banking Group plc, ARM Holdings plc and Royal Dutch Shell plc

Lloyds Banking Group plc (LON: LLOY), ARM Holdings plc (LON: ARM) and Royal Dutch Shell plc (LON: RDSB) should provide cash well into your retirement.

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Investing for dividends, and reinvesting them. is an excellent strategy, but it should be about more than just the current dividend yield of a share — we should be more interested in the total dividend returns we’re likely to get over the next ten years and more.

A great prospect

Having said that, Lloyds Banking Group (LSE: LLOY) looks to me like it scores on both counts. The Bank of England’s Prudential Regulation Authority allowed Lloyds to resume paying dividends in 2014, although the cash only amounted to a yield of 1% that year. But in 2015 the bank upped that to 3.1%, which was already back in line with the FTSE 100 average.

And if you buy Lloyds shares now, analysts think you’ll be in for a very nice yield of 6.3% this year on shares priced at 70.2p, rising as high as 7.4% in 2017! That would be covered by earnings around 1.5 times, which is probably comfortable enough. But I wouldn’t like to see it getting any thinner than that, and I don’t see dividends rising any faster than earnings beyond next year.

In its recent first-quarter update, Lloyds reported a “strong balance sheet” with a CET1 ratio up at 13%, and told us its net tangible assets per share were up to 55.2p from 52.3p at 31 December. Coming on top of Lloyds having reiterated its “progressive and sustainable ordinary dividend policy” at full-year results time in February, I see Lloyds shares as a great dividend prospect for now and for the future.

A growth share?

You might think I’m a bit mad for suggesting ARM Holdings (LSE: ARM) as a dividend share. After all, the chip designer is a classic growth investment, with ARM shares up nearly 700% over the past ten years, to 938p — and its forecast dividend yield stands at only a little over 1%.

But what that misses is the rate of growth of ARM’s dividends. Over the past four years, the annual cash payment has been lifted by 29%, 27%, 23% and 25% — and there are further hikes of 16% and 21% forecast for 2016 and 2017 respectively. Those rises might not be enough to keep up with Venezuelan inflation, but they wipe the floor with the UK’s paltry couple of percent.

If you’d bought ARM shares at the start of 2011 at around 460p, you’d have only received 0.6% in dividends that year. But if 2017 forecasts prove accurate, you’ll enjoy a yield of 2.7% that year — you’d be raking in cash close to the FTSE 100 average after just four years, from an out-and-out growth share. Just think what effective yields you’ll be getting if dividends (which are still more than three times covered by earnings) keep on going at this pace for another decade!

Oil is for ever

Finally I come to one that I think is a really obvious long-term cash cow, and that’s Royal Dutch Shell (LSE: RDSB). Shell hasn’t made the same commitment to maintaining its dividend throughout the price crunch as BP, but with oil continuing to creep back up and getting close to $50 a barrel again, it seems increasingly likely that the payments will keep on coming.

With Shell shares at 1,664p, forecast dividends for 2016 and 2017 would yield 7.7% per year, and that’s one of the best in the FTSE 100 at the moment. In fact, though Shell shares have fallen by 19% over the past five years, dividends have actually brought the total return back into positive territory with an 8% gain — and how’s that for the worst oil crisis we’ve seen in decades?

Over the long term, oil prices are going to recover and oil demand will keep increasing. And I don’t see how Shell could not keep on handing out oodles of cash.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft owns shares of Lloyds Banking Group. The Motley Fool UK has recommended ARM Holdings, BP, and Royal Dutch Shell. 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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