The best shares to buy for income, at least in my view, aren’t those offering the highest payouts. It’s those where dividends are consistently growing that I’d be inclined to invest in. Here are two examples.
Fund manager Liontrust (LSE: LIO) has been hiking dividends by double-digits for years now. It’s done it again today on the back of a great set of full-year numbers.
Adjusted pre-tax profit jumped 69% to £64.3m over the year to the end of March. On a statutory basis, it more than doubled from £16.5m to £34.9m.
As a sign of its growing popularity, net inflows also jumped 30% to £3.5bn over the period. At the end of March, Liontrust had £30.9bn in assets under management and advice — up 92% on the previous year. Last Friday, this was £33.3bn.
And those dividends? Today, Liontrust announced it would pay holders a total of 47p per share for the full year. This is up a massive 42% on that returned in 2020 and equates to a trailing yield of 2.8%.
All told, the dividend has now grown an average of 33% per annum since 2017. This is indicative of a very healthy company, in my view. I’d much rather have this than be promised a huge payout by a company that, due to poor trading, never materialises. This is why I think the £1bn-cap could be one of the best shares to buy for income today.
Looking ahead, Lionstrust is hoping to capitalise on the interest in sustainable investment by launching its ESG Trust in July. Importantly, this new vehicle will feature small-cap stocks that most funds shy away from. Assuming this proves a successful strategy, I suspect dividends will continue rising from here.
Another dividend hiker
A second company that’s been consistently raising its dividends is self-storage firm Safestore (LSE: SAFE).
Earlier this month, the company reported a “very strong performance” over the first half of its financial year. As a result, Safestore has predicted that full-year earnings will be “at least at the top end of its previous guidance.”
All this should be good news for the dividends. Right now, analysts are predicting a 54% jump in the final payout for FY21 (22.9p per share). Based on today’s share price, that becomes a yield of 2.4%.
Again, investors could get a lot more elsewhere. However, these dividends might not be growing at the same clip, if at all. A stagnant income stream isn’t encouraging.
So, taking into account its fairly predictable earnings stream and encouraging store pipeline, I think Safestore is another one of the best shares to buy if I were looking for an increasing income stream.
Naturally, dividend hikes are based on trading. And by its very nature, trading at any business will fluctuate from year to year. As such, no income stream is too strong to be cut when the going gets tough. This could be the case even for Liontrust and Safestore. Neither are completely immune to macro-economic setbacks.
This is why I think it’s important to ensure that my portfolio is appropriately diversified. In practice, this means holding a bunch of stocks from different sectors. Doing this would allow me to kick back and not get flustered with day-to-day market wobbles.
Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.