Here’s a disclaimer right at the top. I don’t expect the stock market to fall anytime soon. But at some point another crash, either financial or from an unseen event like Covid-19, is inevitable. With that in mind investors wanting to create a sustainable, growing income from dividends, potentially a passive income, should make sure their portfolio contains shares that can provide dividends in all economic conditions.
The recent market crash has given us an insight into which companies might be able to sustain their dividends. These companies are the steadiest even in an uncertain world and when concerns around the economy grow. The list is around 430 strong, according to stockbroker AJ Bell, but some names stand out as potential long-term holds.
The dividend champions
FTSE 100 utilities giant National Grid is one company that has the predictability of earnings to be able to provide an income in all market conditions. Demand for electricity won’t go away and the company has large regulated earnings. This means it has good visibility over its income and should be able to keep paying a dividend.
An investment trust like the City of London investment trust is also a good choice for creating a growing income from dividends. That’s because trusts can hold reserves from good years to pay their dividends in bad years. The payouts of investment trusts held up pretty well this year when so many other shares had their dividends suspended or cut.
Tesco is another share where there’ll always be demand for the product. People eat even if they become unemployed or fearful about their job. A market crash would help the discounters take market share, but overall Tesco should remain in favour with investors and keep paying a growing dividend.
The last of my four dividend champions is FTSE 100 pharma group AstraZeneca. Before the pandemic, in particular, the group was making fantastic progress with its drug pipeline. New drugs will underpin its ability to keep paying dividends to shareholders. There’s still a lot of potential there, which is reflected in the share price. The group is now so well positioned that it’s spending $39bn to buy Alexion in the biggest pharma takeover this year.
Features of shares that can grow shareholder payouts
All the shares, excluding the investment trust, are what you might call defensive shares. The companies don’t suffer a noticeable fall in demand when the economy takes a turn for the worse. People still need electricity, food and medicines, so dividends from these kinds of shares are more resilient in a downturn.
It could be argued the share price is also more resilient, as investors look to the dividend shares – especially in a super low interest rate environment.
I believe these four shares can grow their dividends whatever happens in the world in the coming years. That potentially makes them worth including as part of any portfolio, perhaps alongside some more growth-focused shares.
