Dividend growth shares can be powerful long-term investments. These can potentially generate rising income as well as share price gains over time (a growing dividend payout tends to push a company’s share price higher).
Earlier this week, I screened the UK stock market for shares with yields above 3% and five or more consecutive annual dividend increases. Here are three shares that caught my eye and I believe are worth considering for an investment portfolio today.
A vital industry
First up is defence powerhouse BAE Systems (LSE: BA.). It currently sports a dividend yield of about 3.1%. I reckon this stock’s a smart choice for 2025 and beyond. Today, geopolitical tension is elevated globally, so governments can’t afford to ignore defence spending.
Meanwhile, after a near-20% share price pullback since mid-November, the valuation looks attractive right now. Currently, the price-to-earnings (P/E) ratio using the 2025 earnings forecast is just 15, which isn’t high.
Of course, the risk with a company like this is that governments (particularly the US and UK governments) can and do reign in their defence spending. This scenario could lead to a drop in growth (for 2025 analysts expect earnings growth of about 12% here).
I think this is a good sector to consider for the next few years however, given the uncertain geopolitical backdrop.
A rapidly rising payout
Another industry I like for 2025 and beyond is alternative investments (eg, private equity, private debt, infrastructure, etc). Today, interest in this asset class is booming as many investors are looking to diversify away from stocks and bonds.
One UK-listed company that operates in this space is Intermediate Capital Group (LSE: ICG). It’s an under-the-radar FTSE 100 company that manages around $100bn on behalf of investors.
The dividend payout here’s grown rapidly in recent years. For the last financial year (ended 31 March 2024) the company paid out 79p per share – up 41% on the figure three years earlier.
For the current financial year, analysts expect a payout of 86.3p per share. That equates to a yield of around 4.2%, which is decent.
Now, this stock can be volatile. As an investment company, its share price can be influenced by developments in the financial markets (eg, interest rates).
Taking a long-term view though, I see quite a bit of potential. I think it could even be a takeover target.
Consistent dividend growth
Finally, check out Coke bottling partner Coca Cola HBC (LSE: CCH). It currently yields around 3.4%.
This company has a brilliant long-term dividend growth track record. Since paying its first dividend in 2014, it’s raised its payout every single year.
You often see this kind of consistency with consumer goods companies that have strong brands. That’s because these companies generally have the ability to put their prices up regularly, which increases their earnings and cash flows over time.
I’ll point out that geopolitical tension and conflict could present some challenges for this company in the near term. For example, consumers in some countries may decide to boycott US brands.
With the shares currently trading on a P/E ratio of just 13 however, I like the risk/reward set-up today.
