What FTSE shares might raise their dividends annually for the next half century?

By looking at some characteristics of one FTSE 100 Dividend Aristocrat, our writer hopes to spot some potential future serial dividend raisers.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Close-up of British bank notes

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Like a lot of investors, I appreciate the passive income streams that can come from owning dividend shares. A number of FTSE 100 shares have excellent track records not just of paying dividends, but of raising them year after year.

British American Tobacco has been doing that since the last century. Diageo has been raising its dividend annually for over 30 years. Meanwhile, Spirax (LSE: SPX) has grown its dividend every year for over half a century.

What I’m looking for now

Past performance is not necessarily a guide to what will happen in future, although I do feel that if business performance allows for it, most boards would be nervous about stopping the sort of long streak of growth in shareholder payouts achieved by these Dividend Aristocrats.

Should you invest £1,000 in Spirax-sarco Engineering Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Spirax-sarco Engineering Plc made the list?

See the 6 stocks

While I like Spirax’s business and would be happy to own the shares, I have no plans to buy them at the current valuation. The price-to-earnings ratio of 29 is too high for my taste even for such a strongly performing company.

That valuation also means that, even after all those decades of annual dividend raises, the yield is currently 2.1%. That is notably less than the average offered by all FTSE 100 shares, let alone the high-yielding ones.

Still, I think Spirax’s track record can help me when hunting for shares that may possibly deliver a future dividend track record like it has in the past half century – and are reasonably priced now.

Big spending customers with few possible solutions

One clue is in Spirax’s customer base. If you are running a factory and a piece of your machinery suddenly breaks, the potential cost of the delaying stoppage may be huge. In such situations, customers need a solution urgently.

That can mean they are more or less insensitive to price. It can also mean they want to deal with a known quantity in the sense of a firm they have found reliable in the past.

So, Spirax’s focus on industrial customers and its business model of supplying and maintaining often bespoke thermal energy engineering solutions to them is smart, in my view.

Also smart is the fact that the FTSE 100 firm has chosen to operate in areas where competition is limited, giving it even more pricing power. An example is the company’s specialisation in what are known as Watson-Marlow pumps. Thanks to its proprietary technology, Spirax has a unique advantage over competitors.

That said, one risk in such a model is getting greedy. Pricing power is all well and good – but it can motivate rivals to generate innovative solutions at lower cost.

Investors who love dividends love boards that love dividends!

But while having a business that looks set to generate sizeable and increasing free cash flows can help fund regular dividend growth, it is not enough.

After all, lots of companies generate large free cash flows without paying dividends. I also look for a company’s policy to see whether it has what is known as a progressive dividend policy. That means the stated aim is annual growth in dividend per share.

That is a goal and may not ultimately happen. But I see such a policy as a positive signal that a company’s board is focussed on trying to grow its dividend annually.

Should you invest £1,000 in Spirax-sarco Engineering Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Spirax-sarco Engineering Plc made the list?

See the 6 stocks

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

C Ruane has positions in Diageo Plc. The Motley Fool UK has recommended British American Tobacco P.l.c. and Diageo Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

We think earning passive income has never been easier

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

More on Investing Articles

artificial intelligence investing algorithms
Investing Articles

Up 272% in just a year, is Palantir stock just getting started?

This writer recognises that Palantir has grown its business very well -- but does the stock price offer him an…

Read more »

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

Up 50%? The Aston Martin share price forecast is mind-blowing! 

If analysts are right, the Aston Aston Martin share price could absolutely rocket in the year ahead. Harvey Jones says…

Read more »

Investing Articles

As the S&P 500 drops, here are 2 Stocks and Shares ISA holdings I’m watching

Our writer has different views on how President Trump's tariffs might affect these two US holdings in his Stocks and…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

£10,000 invested in Tesla stock at Christmas is now worth…

Tesla stock has been one of best-performing investments of the past decade. But things haven't gone to plan for investors…

Read more »

Investing Articles

Up 279% in 5 years, could Meta stock keep soaring?

Meta stock has more than tripled in five years. This writer sees lots to like about the business but also…

Read more »

Pink 3D image of the numbers '2025' growing in size
Investing Articles

25% total return in a year? Is now the perfect time to buy BP shares?

BP shares are on the front line of today's global economic and political uncertainty but analysts think they can still…

Read more »

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

With Cash ISA changes coming, could now be the time to consider buying shares?

Changes to the Cash ISA could lead to greater investment in the stock market. This could be a good thing…

Read more »

Investing Articles

These FTSE 100 dividend shares just got cheaper, thanks to President Trump!

Investors buying dividend shares can lock in bigger long-term yields when share prices take a tumble. These two just did…

Read more »