I’ve scoured the list of the largest FTSE companies that have raised their dividends every year for at least five years, and have also seen their share price rise over the same period.
It wasn’t an easy task.
Of the largest UK public companies, only a handful meet this strict criteria.
Growing dividends at the same time as growing profits is an exceedingly difficult thing to achieve.
Why? Well, if a business commits too much of its free cash flow to paying out dividends to shareholders, that money can’t be used to expand its business. It also can’t use that spare cash for investing in new technology or acquisitions. These moves can often boost revenues or profits.
But the companies that manage the task are going straight to the top of my watchlist. If I want to have enough cash to retire, I’ll need an ISA or SIPP stacked full of these compounding giants.
Growing by buying
Bunzl (LSE:BNZL) is not the kind of flashy stock beloved by forum posters who debate its price day in and day out. But it is a consistent and predictable profit-making machine.
The £10bn FTSE 100 industrials company sells its products in more than 30 countries. These products include medical gowns, disinfectants, and food packaging. By themselves, these may goods with low profit margins. But they make Bunzl an incredibly important supplier for thousands of businesses worldwide.
Bunzl also has a successful acquisition strategy, spending £4.5bn to buy up more than 190 smaller businesses since 2004.
Since 2017, net profits — also called a company’s “bottom line” — have grown by 90%.
So let’s talk about the dividends on offer here. WIth a share price of 2,492p at time of writing, and four payouts a year of 57.72p, that works out to a 2.15% dividend yield. It’s not a king’s ransom by any stretch.
But Bunzl has grown its payouts to income investors for more than 23 years! The share price is also 40% higher in the last five years.
While this is unlikely to light anyone’s world on fire, it has been consistent and predictable. For me, that’s crucial. I’ve wasted enough money on illiquid, lottery-ticket stocks to know the difference between promises and results.
Long-term strategy
As a long-term compounding growth investor I want to avoid FTSE companies with patchy or inconsistent records.
I have to think like Warren Buffett and remember that I’m buying a business — not just a story. This is in my mind every time I invest in dividend stocks and shares.
That high share price of almost £30-a-pop may put off newer or younger investors who are used to being able to buy fractional shares in low-cost broker accounts. I could consider this a downside, as it may deter fresh capital from coming into the business.
But as we heard from HMRC in October 2023, fractional shares don’t qualify for the tax advantages of being held in an ISA.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
I’m focused on steadily growing my net worth over the next 15 years or so before I retire. I’m not a joyless automaton, but I’ll leave my gambling to the odd bet on the football rather than risking my retirement cash.
