There are many ways of looking at dividend stability, but I think two criteria are most important.
Firstly, I believe the products and services provided by income stocks should be in demand, even in recessions. One example is groceries and healthcare-related demand. Another is utilities like electricity, gas and water supply.
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Secondly, these stocks should have a history of paying dividends. If the company isn’t committed to generating passive income for investors, its dividends are less likely to be reliable.
The good news is that there are plenty of FTSE 100 shares that are likely to meet both criteria.
Here are three stocks among these I like:
#1. GlaxoSmithKline: High dividend yield
With its 6.3% dividend yield at the time of writing, the pharmaceuticals and healthcare provider is an attractive income investment. GlaxoSmithKline (LSE: GSK) also intends to maintain its dividends at the current levels of 80p a share in 2021.
Its financials are also strong, which suggests dividend continuity to me. It has however said in its latest financial release, from earlier in the month, that dividends could be reduced in the future.
How much by, remains to be seen. In the meantime, however, a key risk, as I see it, stems from its weak share price. If it continues to weaken, I think there will be higher risk to capital in buying shares in GlaxoSmithKline.
#2. National Grid: Relatively stable demand
Energy provider National Grid (LSE:NG) also currently offers a high dividend yield of 5.7%. Like all utilities, its demand is impacted less by recessions or even lockdowns than that of more consumer-sensitive sectors like non-essential retail.
It has also increased its dividend payments in the last three years.
But there is risk here, too, of course. Its income has been falling steadily for three years. If this continues, it might eventually put the dividends or at least their current levels at some risk.
There are also changes afoot for NG in terms of running the UK’s electricity systems. I would keep up to date with these developments to see how they impact investor sentiment.
#3. United Utilities: Rising dividends
The water and wastewater services provider United Utilities (LSE:UU) offers a 4.8% dividend yield as I write. While it may not be among the highest yield available, I think there’s a case to be made for future stability.
In its last financial results, for the six months ending September 30, 2020, it reaffirmed its dividend policy. In fact, it intends to grow them in line with inflation up to 2025.
Its share price trend has also been stable in recent years, which is encouraging. However, I recognise there is added capital risk to buying United Utilities shares. The stock market rally isn’t particularly favourable to defensive stocks like UU, and its share price could fall as a result.
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