In the hunt for yield, if it looks too good to be true often it is. However, among my list of UK shares to buy now for my portfolio, there are two shares that raised their dividends by 10% this year. Not only that, I see potential for further double-digit dividend raises from these companies in the future.
Let’s get into the details.
Little-known dividend raiser
The first of the dividend raisers on my UK shares to buy now list is Judges Scientific (LSE: JDG). Like Warren Buffett’s Berkshire Hathaway, Judges is essentially a holding company. It buys up scientific instrument manufacturers, which continue to trade under their own names. That helps them build their reputation. In terms of business approach, Judges – like Berkshire – is also fairly hands off. But by acting as a centralised capital allocator and administrator, it can help the individual companies improve their business processes, without getting in the way.
Like Buffett, Judges is also disciplined in how much it pays for acquisitions. That enables it to grow its business in a way that adds rather than detracts value. That’s not where the comparison with Buffett ends. He often talks about pricing power: the ability to combat inflationary pressures through raising prices. This is easier if a business has a ‘moat’: something that helps it defend itself from competitive attack. Judges has purposefully targeted a business area where quality and precision matter. That can help insulate it against low cost competition.
From profits to dividends
While I like Judges’ similarities to Buffett’s style, I also appreciate one way in which it diverges from the Sage of Omaha: dividends.
Berkshire doesn’t pay dividends. Judges, by contrast, pays them and has consistently raised them. The increase in its most recent full-year dividend was 10%. That’s actually low compared to the company’s recent history. In the prior two years, ordinary dividends had increased 25% annually. On top of that, there was a £2 special dividend for the 2019 financial year.
Dividends are never guaranteed, though, and Judges does have risks. Institutional shutdowns and travel restrictions threaten revenues as its engineers can’t get out to install new instruments. A yield of just 0.7% also raises the issue of whether the share price, now trading at a price-to-earnings ratio of 45, is overvalued.
UK shares to buy now: DCC
Like Judges, DCC (LSE: DCC) raised its most recent full-year dividend by 10% despite the effects of the pandemic. But that was not a surprise for DCC shareholders: it has raised its dividend by double digits in four out of the past five years, after all. DCC has now clocked 27 years of annual dividend raises in a row. The current yield on DCC shares is 2.5%.
Track record of business performance
Like Judges, DCC is not well known by many investors. The Irish-based, London-listed company is basically a small conglomerate with businesses spanning fuel distribution, healthcare, and technology. Management has proven its ability to grow the business and reward shareholders. But it does face risks. As one of Europe’s largest natural gas distributors, pricing swings and environmental regulations could both eat into profits in coming years. That could hurt dividends.
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Christopher Ruane has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Berkshire Hathaway (B shares). The Motley Fool UK has recommended Judges Scientific and has recommended the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). 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.