Dividend investing can be difficult sometimes. You might buy a dividend stock that has a high yield, but a few months down the line the firm might decide to cut the payment.
Even though it’s impossible to predict the future, I can make my life easier by targeting stocks where the dividend has been actively increasing in the past few years. Here are two I’m noting down.
A track record of investment advice
One is Rathbones Group (LSE:RAT). The wealth and investment manager might not be the largest financial institution in the UK, but its presence in the FTSE 250 shows it’s no small fry.
Over the past year, the share price is up a modest 6%, with a current dividend yield of 4.82%. Yet it’s the dividend growth over the past few years I’m really focused on. The dividend per share over the last year has totalled 88p. This is an increase from the 84p the year before and the 82p from the year before that.
Even during the rocky pandemic period over 2020 and 2021, the dividend per share continued to tick higher. I think the company’s able to do this thanks to its business model. The majority of revenue comes from fees made from selling investment products to individuals. Given the long-term nature of these products and the relationship management’s built over time, Rathbones benefits from having steady and reliable revenue.
As a result, it doesn’t surprise me revenue’s also increased for each of the past few years in line with the dividends. This means dividends aren’t under pressure and can be covered by earnings.
One risk is the recent merger with Investec Wealth & Investment. The two businesses might not gel that well and it could cause problems further down the line.
Dividends flowing like water
Another option I’m considering is Severn Trent (LSE:SVT). The current dividend yield’s 4.72%, with the share price up 1% over the past year.
Over the course of the past five years, the dividend per share’s risen from 100.08p to 116.84p. Each year within this period, it’s moved higher. Even thought profit before tax has fluctuated over the years, it’s always been profitable. With a current dividend cover of 1.4, this gives me confidence income payments can easily be covered by the earnings.
Looking forward, I think the stock can continue to do well due to its defensive nature. As one of the leading water companies in the UK, it provides an essential service to millions of businesses and individuals. Therefore, with the recent recession jitters in the market, I’d expect investors to rotate into stocks like Severn Trent and out of riskier growth stocks if sentiment starts to go south.
Even if consumers tighten their belts with spending in the coming year, people will clearly still pay their water bills. As a result, I expect the finances of the firm to stay strong.
A risk is the reputational damage and potential fines from the regulator when the investigation regarding wastewater spillages comes to a close.
Overall, I’m thinking about adding both stocks to my portfolio when I get more free cash.
