I recently came across a 2017 report from AJ Bell on the impact of growing dividends in FTSE 100 shares. The size of the impact shocked me. It’s something I feel every investor should note.
The report was simple. It looked at the total return from FTSE 100 shares that had grown their dividends for 10 years or more. In the time period chosen – from 2007 to 2017 – these shares returned 12.4% a year. The FTSE 100 as a whole returned 5.2%.
Looking at the stocks individually, the dividend-increasers went up nearly four times (380% average) when the Footsie stocks didn’t even double (65% average). That’s a huge difference and shows what a great indicator a growing dividend is.
In a lot of ways, it makes sense too. A company that can grow a dividend must have many desirable traits. It must have a proven business model with consistent cash flows and its management must be capable of pursuing and capitalising on growth opportunities, to name a couple.
It’s easy enough to find the FTSE 100 shares with long-growing dividends. And, surprise surprise, they’re among the most reputable companies going. Here are three I think investors should consider.
Best going
The first dividend-grower to catch my eye is BAE Systems whose dividend has increased for 20 years in a row. It rose through the 2020 Covid crash and the 2008 financial crisis, when plenty of other firms cut or cancelled shareholder payouts.
BAE has seen huge demand for the weapons it sells, which include the F-35 Fighter Plane, the M88A3 Heavy Recovery Vehicle and Hunter Class Frigates. This rising demand and state-of-the-art engineering is why I think the stock will continue to grow.
I’m happy to own shares in the arms manufacturer and consider it one of the UK’s greatest stocks. But there’s a downside — the weapons link. This is an ethical hurdle that some might not be able to get over.
Software company Sage Group can boast a dividend that has increased for even longer, stretching back 28 years. That run started in the mid-1990s and kept rising even through the dotcom crash, which brought a lot of other tech firms to their knees.
Sage’s dividend yield might look low, at 1.82%, but the stock has been a big winner. It’s increased six times in value since 2008. I don’t own the shares, but I’m tempted to open a position soon.
As for risks, the accounting software it sells to small businesses could be under threat from competitors. The barrier to entry is low for this kind of technology product.
Longer still, safety group Halma can point to a dividend that has increased for 44 consecutive years. I believe no other FTSE 100 firm has such a lengthy streak, and it’s likely a contender for one of the longest anywhere in the world.
Since 1980
That string of increased payments began in 1980, before the FTSE 100 even existed. And the dividend has been growing through a generation of recessions, crises and stock market crashes.
With this enviable track record, the stock is sold at a premium. The firm now trades at over 30 times earnings. That big price tag – nearly triple the Footsie average – is a risk and what puts me off most from opening a position here.
