A dividend-growth stock refers to shares of a company that not only pays dividends to its shareholders but also has a history of increasing the amount of those dividends over time.
The ability to consistently raise dividends is often seen as a sign of a company’s financial health and stability, suggesting it is generating increasing profits and has a positive future outlook.
We asked five freelance writers for their top suggestions of British shares meeting this criteria right now!
Bunzl
What it does: Bunzl supplies a range of essential products through approximately 150 companies across the globe.
By Royston Wild. The key to successful dividend investing is finding shares that can provide a sustainable and growing dividend over time. In my opinion, FTSE 100-listed Bunzl (LSE:BNZL) is one of the best on the London stock market.
The support services business has raised the annual dividend for a terrific 31 years on the bounce. What’s more, they have risen at a healthy compound annual growth rate of around 10% over the period.
With Bunzl’s share price having also soared around 2,300% during that time, investors who bought in at the start of the 1990s would be sitting on a fat wad of cash right now.
The company’s strong performance is down largely to its lucrative acquisition-based growth strategy. Encouragingly, it has shown the appetite (and crucially has the balance sheet strength) to continue on this hugely successful path, too.
It spent £468m on 19 further bolt-on buys in 2023 alone. This is a company with further significant long-term investment potential, in my opinion.
Royston Wild does not own shares in Bunzl.
Dunelm Group
What it does: Dunelm is a homewares retailer that sells through a network of UK stores and online, with a focus on value and choice.
By Roland Head. Dunelm Group (LSE: DNLM) doesn’t get many headlines in the investing press, but I rate this family-controlled business as one of the best retailers in the UK.
Double-digit profit margins and an asset-light business model mean that Dunelm generates very high returns on capital. This translates into lots of surplus cash to support generous dividends.
Dunelm’s ordinary dividend has grown by an average of 16% per year since its flotation in 2006. The company often pays one-off special dividends too.
I often find that family ownership is a sign that a business is run to deliver sustainable long-term returns. I believe that’s true here.
Dunelm’s sales could be hit during a recession. I think there’s also a risk growth will slow as the business gets larger.
However, the valuation looks reasonable to me at the moment, with a forecast dividend yield of around 4.5%. I plan to be a long-term holder.
Roland Head owns shares in Dunelm Group.
Games Workshop
What it does: Games Workshop designs and manufactures miniature figures and tabletop wargames, including Warhammer 40,000.
By Ben McPoland. Games Workshop (LSE: GAW) is the maker of multiple fantasy worlds loved by millions. The stock also offers the best of both worlds in terms of growth and dividends.
As the firm says, “We return our surplus cash to our owners and try to do so in ever increasing amounts.” The dividend yield is 4%, which is substantial given that the share price has more than doubled over the past five years.
On 30 July, the company reported the best annual results in its history. It achieved record sales, earnings, dividends, and staff profit share payments. Meanwhile, it’s finalising “creative guidelines” to bring its Warhammer 40,000 universe to Amazon Prime. A hit series of films and television programmes could be a powerful catalyst for Games Workshop’s growth.
One risk highlighted by the firm is its legacy IT system, which “keeps randomly annoying us and causing temporary issues for us and our customers”. These order processing issues could stall its growth plans until it replaces the old systems.
Long term, I think the combination of rising dividends and steady profit growth can help create generational wealth for shareholders.
Ben McPoland owns shares in Games Workshop.
Legal & General
What it does: Legal & General is a UK-based financial services provider specialising in retirement-linked products
By Christopher Ruane. A company that has announced plans to cut its annual dividend growth rate might not sound like a promising option to try and build generational wealth.
But I still see two reasons to like the income outlook for Legal & General (LSE: LGEN). First, slower growth is still growth. Secondly, with a dividend yield of 8.8% right now, the FTSE 100 share is already a juicy income stock.
The dividend is projected to grow at 5% this year and 2% for the next few years, Even if the 2% rate stays for decades, if I bought the shares today, my investment would hopefully be yielding over 13% annually two decades from now.
Whether that happens depends on the firm’s business performance: dividends are never guaranteed. Legal & General cut its payout during the last financial crisis. It remains vulnerable to volatile markets leading clients to withdraw funds.
But I like its large customer base, high long-term demand and strong brand.
Christopher Ruane owns shares in Legal & General.
National Grid
What it does: National Grid operates energy distribution networks in the UK and the USA.
By Alan Oscroft. When it comes to generational wealth, we need to focus on companies that can keep performing for decades to come.
That’s why I choose National Grid (LSE: NG.).
Strong forecast dividend yields look hard to ignore. Analysts see them as solid in the coming years, though starting down a bit in 2025.
That’s where the National Grid dividend might look less gold-plated than before. The firm’s recent equity issue diluted the per-share cash. And done once, there has to be a chance the firm could do it again.
But the equity issue is all about the growth side of the coin. The company needs to expand and update its networks, as the demand for electricity from renewable sources looks set to keep on climbing. And that means more costs.
I see more risk than usual from National Grid now. But for the long term, I rate it as one to consider for handing down the generations.
Alan Oscroft has no position in National Grid.
