FTSE 100 dividends play a key role in many income investors’ portfolios. While shareholder payouts aren’t immune to disruption, many of the firms inside the UK’s flagship index have impressive track records. In fact, 20 of these enterprises have managed to raise dividends for more than 10 years consecutively, with some even getting close to a quarter of a century of undisrupted growth.
Despite this proven resilience, many of these stocks are still trading at a discount thanks to last year’s correction. And consequently, investors now have the rare chance to tap into higher yields without necessarily taking on higher risks. So, if I were looking to invest £5,000 in this index today, here’s what I’d look out for.
Boring is usually best
Investing in novel and ground-breaking technologies can make being an investor quite an exciting prospect. After all, who doesn’t love the idea of financially supporting potentially world-changing technologies like CRISPR gene editing or hydrogen fuel cells.
Yet when it comes to dividends, sticking to dull businesses can actually be far more rewarding. Why? Because it garners less interest from other investors, often creating more buying opportunities.
That means higher yields as well as typically less volatility. And just because something lacks pizzazz doesn’t mean it can’t lead to impressive returns.
| Company | Description | Dividend Hike Streak |
| Halma | Engineering firm that makes safety equipment | 44 Years |
| Diageo | Manufacturer of a wide variety of alcoholic drinks | 36 Years |
| DCC | International marketing and support services group | 29 Years |
| Bunzl | International logistics and distribution firm | 27 Years |
| British American Tobacco | Manufactures tobacco-based products | 23 Years |
Track records still need careful study
As with all things in the world of investing, past performance doesn’t guarantee future returns. Every company, regardless of size, has the potential to be disrupted or made obsolete. That’s why the FTSE 100 today is quite different compared to when it was first created back in 1984.
With that in mind, what factors should I be on the lookout for when deciding where to invest my £5k? When it comes to dividends, free cash flow is at the top of my priority list. This is where the money comes from to fund shareholder payouts. And if a firm’s cash generation is being pressured, it’s essential to find out why.
A temporary disruption to operations is far less concerning than an increasingly unsustainable debt load, especially now that interest rates have been hiked so aggressively.
Something else I’d pay close attention to is the dividend history itself. Many companies like to maintain their Dividend Aristocrat status without necessarily having the financial capacity to do so meaningfully. For example, National Grid is another company from the UK’s flagship index that’s raised its payouts for more than a quarter of a century. Yet over the last 10 years, the average dividend growth rate has only been 3.1%, barely scraping past inflation.
