When looking for dividend stocks, one thing I always seek out is growth in the payout. When companies are regularly increasing their payouts, they can turn into cash cows for investors over the long term.
Here, I’m going to highlight two under-the-radar UK dividend stocks that have rising payouts. If one is looking to build a growing passive income stream, I think these shares could be worth considering.
Unbelievable dividend growth
First up, we have Yü Group (LSE: YU.). It’s an independent supplier of gas and electricity to small and medium-sized businesses across the UK (and a smart meter installer).
This company has one of the fastest-growing dividends on the London Stock Exchange. Last year, the company raised its payout to 40p from 3p per share – an increase of an incredible 1,233%.
This year, analysts expect the payout to rise another 43% to 57p. That would take the yield to about 3.5%.
What strikes me about this company – aside from the spectacular dividend growth – is that it’s performing very well at the moment. In the first half of 2024, revenues grew 60% to £313m while earnings per share soared 52% to 88p.
Looking ahead, CEO Bobby Kalar said that he expects continued momentum in H2 and that company is looking to take advantage of a £50bn+ market opportunity.
It’s worth pointing out that Yü has no control over energy prices. So there’s no guarantee that revenues and dividends will continue to rise.
Overall though, I think the stock looks very interesting today and is worth further research. The price-to-earnings (P/E) ratio is just 8.5 so there’s some value on offer too.
A steadily rising payout
The second company I want to highlight today is Spectra Systems (LSE: SPSY). It’s an AIM-listed business that provides solutions to authenticate banknotes, postage stamps, wine, spirits and tobacco, and also provides security software for lottery organisations.
The yield here is decent at around 3.7%. But most importantly, the payout is also rising at an impressive rate.
Last year, the company paid out total dividends of 11.6 cents per share, up 66% on the figure five years earlier. This year and next, City analysts expect payouts of 12 cents and 13 cents.
One thing I like about this company is that it has contracts with governments (central banks) for its banknote technology. This means revenues are likely to be quite resilient going forward.
Of course, today there’s a global shift away from cash. Physical money isn’t likely to disappear completely any time soon, but this trend could create challenges for the company in the future so it’s something to think about.
In terms of the valuation, the P/E ratio is currently 15, falling to just 7.3 using next year’s earnings forecast. At those multiples, I see some value here.
Overall, I think this dividend stock has the potential to provide attractive returns in the years ahead and is a good one to consider.
