What are the best FTSE 100 stocks to buy right now? Well, I’ve got a few in mind that have been increasing their dividends for a decade or more.
Here are seven promising stocks including one that I’d buy today. Let’s take a look.
| Dividend | Years increasing | |
| Bunzl | 2.26% | 30 |
| Sage | 1.89% | 28 |
| British American Tobacco | 8.96% | 26 |
| Croda | 2.07% | 25 |
| Diageo | 2.52% | 25 |
| DCC | 4.37% | 25 |
| BAE Systems | 2.77% | 20 |
Now, I’ve highlighted their increasing dividends for an important reason. A gently rising dividend is a prized quality. Some call it the greatest measure of a stock.
The reason? It’s a simple but revealing piece of information. A company that can hike its payout year after year is often well-run, makes lots of cash and uses that cash effectively. Those are three very nice boxes to tick.
The numbers bear this out too. A 2017 report from AJ Bell looked at returns between 2007 and 2017. It showed that firms with 10 or more years of dividend increases had a 12.6% annualised return. The FTSE 100 as a whole had 5.2%. That’s a striking overperformance.
It makes sense though. When a dividend goes up, it increases the shareholder return in two ways. One is the bigger dividend, of course. But a stock also becomes more valuable the longer it can deliver an increasing payout. This way, the share price gets dragged up too.
Warning signs
Most dividend stocks do aim to increase payments. It’s a feather in the cap of any CEO who can pull it off consistently. But it’s sometimes easier said than done. The Covid crisis came out of nowhere in 2020 and caused a lot of cancelled or reduced dividends. Shell notably cut its dividend for the first time since 1945.
The companies in the above table all increased dividends during Covid, so that’s a good start. And there’s one in particular that I think is a great buy, but I’ll offer a few words of caution first.
First, a very high dividend yield is sometimes a warning sign. British American Tobacco is an example of this. Its yield is 8.96% which seems a little high. The reason is that the future of tobacco is uncertain. This makes the shares cheaper and the yield bigger. That’s something to watch out for.
Another is debt levels. Some companies use debt to support the dividend. This is what happened with Carillion, the construction firm that collapsed in 2018. It boasted years of higher dividends. Now, it’s just a cautionary tale.
With that said, the company I’m interested in is Diageo. Its 25-year streak of dividends going up is a great start. The yield of 2.52% is decent if not spectacular. But there’s a lot to like here outside of the dividend.
Great entry point
The company has a big moat and sells great products. Brands like Guinness, Johnnie Walker and Tanqueray are popular worldwide. I don’t see that changing any time soon. And now might be an attractive entry point. The stock is down 20% from all-time highs and it currently has a price-to-earnings ratio of around 20. That seems reasonable, although it does look on the expensive side compared to the rest of the Footsie. Still, I’d buy in today if I had spare cash.
