Expecting a volatile stock market to give me lifelong passive income in the form of dividends might sound like I’m asking for too much. After all, no company’s compelled to throw cash back at its investors. And even if they want to, it might not always be possible.
But I do think there are a number of UK shares that stand a better chance than most of delivering the goods year-after-year.
How I find top dividend shares
I look for a number of things when it comes to dividend stocks. The first would be a good record of returning cash to shareholders in the past.
Sure, that one’s a bit obvious. But I’m not looking for perfection here. Every company’s earnings are cyclical to some extent and one or two blips in a record aren’t sufficient to put me off. But I do want to see at least some consistency.
I also want to see more money being paid out as the years pass. This suggests everything is being well-managed and that earnings are growing nicely. Put another way, dividends can’t be fudged. So I can probably sleep easy if I’m receiving extra pennies per share every year.
This is why I’m fine with investing in a stock with only an average or even small dividend yield so long as it’s growing. Compounded over many years, the returns can stack up. To me, this is infinitely better than buying stakes in companies with only the highest cash handouts. ‘What looks too good to be true…’ and all that.
Best in class
Using the above criterion gives me FTSE 100 juggernauts like health and safety firm Halma, international distributor Bunzl and defence giant BAE Systems. From the FTSE 250, there’s meat supplier Cranswick. All score very well on those things I look for.
Also from the mid-tier index is high-tech instrument, test equipment and software provider Spectris (LSE: SXS). This might seem odd — its share price is down over 30% in 2024. What gives?
Well, at least some of this tumble has been caused by weaker demand in China and falling sales of electric vehicles (EVs) reducing profits. Although stimulus measures have been announced to revive the former’s slowing economy, it’s too early to say how effective these will be. This could mean that Spectris stays in the doldrums for a while.
Then again, these headwinds strike me as temporary. Moreover, the company has excellent form when it comes to distributing more money to shareholders every year. Analysts have the firm yielding 3.2% in 2024. This payout also looks like it will be easily covered by profit.
Rear mirror investing
Of course, hindsight’s a wonderful thing. There’s no guarantee that the dividend demons I’ve mentioned will continue throwing off cash in the future.
This is why I still make a point of checking that any money I’ve invested isn’t overly focused on any one sector. Otherwise, I could experience the nightmare of having multiple holdings cancelling or reducing their dividends. That’s hardly ideal, even if I plan to hold for the long term.
All that said, I can see myself buying these stocks in the future, as and when investing for dividends becomes my core strategy.
