Should investors consider these 30 dividend stocks for their SIPP for ENORMOUS retirement income?

Zaven Boyrazian shares the growing list of British stocks hiking dividends for more than 20 years in a row that investors are rushing to add to their SIPPs.

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A common strategy when investing in a Self-Invested Personal Pension (SIPP) is to focus on dividend-paying stocks. After all, these companies can provide a lucrative stream of passive income. And when combined with the State Pension, it can significantly improve a retirement lifestyle.

Sadly, actually finding quality dividend stocks to buy can often be a challenge. But there’s a bit of a cheat code used by many – Dividend Aristocrats.

Thanks to their relatively stable and reliable cash flows, Dividend Aristocrats are stocks that have systematically increased their dividend for at least 20 years. And the London Stock Exchange currently has 28 such enterprises to pick from, with two more (Ashtead Group and BlackRock Greater Europe Investment Trust) on the verge of joining this elite group.

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Britain’s Dividend Aristocrats

  1. DCC
  2. Diageo
  3. Diploma (LSE:DPLM)
  4. Halma
  5. Sage Group
  6. Scottish Mortgage Investment Trust
  7. British American Tobacco
  8. Bunzl
  9. Croda International
  10. F&C Investment Trust
  11. Spirax Group
  12. BAE Systems
  13. Alliance Witan
  14. Caledonia Investments
  15. City of London Investment Trust
  16. Cranswick
  17. Merchants Trust
  18. Murray Income Trust
  19. Global Smaller Companies Trust
  20. Bankers Investment Trust
  21. Derwent London
  22. Primary Health
  23. Scottish American Investment Company
  24. Spectris
  25. Rotork
  26. BlackRock Smaller Companies Trust
  27. Clarkson
  28. Henderson Smaller Companies Investment Trust

These businesses are operating across a variety of industries and economies. That’s great news for portfolio diversification. But what about yield?

With dividends constantly being hiked, surely the payout’s going to be impressive? Well, the average yield of these stocks is actually just 2.9%. With Aristocrats known for their dividend-hiking abilities, a lot of these shares trade at a premium valuation, resulting in unimpressive payouts.

Of course, this may only be temporary. After all, if the companies continue to boost dividends, the yield will naturally rise over time. Unfortunately, investors may be waiting for quite some time.

These companies aren’t keen on losing their aristocratic status. As such, a common tactic is to just increase payments by a tiny amount each year. Consequently, the average dividend growth rate among these firms is only 5.3%.

Investing in the best

Buying the entire FTSE Aristocrat basket can unlock a relatively reliable passive income stream for me. But most of us won’t have the cash for all of them. And to be honest, that stream isn’t likely to grow very fast, only slightly staying ahead of inflation. Yet there are a few exceptions, such as Diploma.

Today, the stock yields only 1.35%. But its growth rate is closer to 15%. And if management can maintain this level of expansion, it may only be a few years before the yield becomes far more meaningful – potentially even extending into double-digit territory.

Since Diploma operates at the heart of other businesses’ complex supply chains, demand for its services isn’t likely to disappear any time soon. In fact, its role as a value-added distributor continues to become increasingly essential, giving the stock plenty of longevity for future rate hikes.

Of course, it’s not a risk-free enterprise. The stock does have some fierce competition and is exposed to the risk of supply chain disruptions preventing order fulfilment to customers. But it may be worth considering taking these risks given the group’s impressive dividend potential. And it’s not the only Aristocrat worthy of a closer inspection as a potential addition to a SIPP portfolio.

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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.

Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended BAE Systems, British American Tobacco P.l.c., Bunzl Plc, Clarkson Plc, Croda International Plc, Diageo Plc, Diploma Plc, Halma Plc, Primary Health Properties Plc, Rotork Plc, Sage Group Plc, and Spectris 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.

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