Not all dividend stocks are created equal. Some deliver impressive headline yields, while others quietly keep increasing payouts year after year. Lately, I’ve favoured high-yielders such as wealth manager M&G, that offers a bumper income of 7.85% a year.
I’ve typically shunned income stocks with low yields, even those with a long track record of rewarding shareholders with annual dividend increases, like these two FTSE 100 dividend superstars. Now I’m having a rethink.
Halma keeps hiking payouts
First up is global health and safety technology specialist Halma (LSE: HLMA). It has a modest trailing yield of just 0.69%, but it’s a real champion for dividend growth.
The company has lifted its annual payout for an astonishing 45 years in a row. Over the last five years, it’s hiked dividends at an average rate almost 7% a year. The Halma share price has done well too, up 31% over 12 months and 60% over two. Calculations from AJ Bell show Halma has delivered a stunning total return of 352% over the last decade, with dividends reinvested. That’s the miracle of compound returns.
Of course, that doesn’t guarantee a repeat performance. The stock looks seriously pricey with a price-to-earnings (P/E) ratio of 35.9. As an international company, Halma is exposed to currency swings and tariffs. Yet for patient investors focused on long-term growth, its track record makes it well worth considering. There’s every chance those dividends will keep rolling in, but its share price could slow after such a strong run.
DCC looks better value
At the other end of the spectrum sits sales, marketing and support services group DCC (LSE: DCC). It has in-built diversification across the energy, healthcare, technology and retail sectors, but that’s about to change.
It’s in the middle of a major transformation as CEO Donal Murphy hones its focus purely on energy, where he hopes DCC can become a global leader in distribution. The healthcare division is being sold for over £1bn, with £800m earmarked for shareholders, starting with a £100m share buyback.
DCC has increased its dividend for an eye-popping 31 consecutive years. Latest results for the year to 31 March showed a 5% increase to 206.4p, giving a 4.4% yield, above the FTSE 100 average of around 3.25%. Free cash flow reached £588.8m, with 84% conversion, suggesting payouts are sustainable.
DCC shares look a lot cheaper than Halma’s, with a P/E of just under 12. However, that’s a result of recent poor performance, with the stock down 8% in the last year and 25% over five years. So this is a value stock, rather than a momentum play.
The company’s dividend has compounded at 10.4% over the last decade, but the total return in that time is a disappointing 20%. The rising yield has failed to compensate for the stagnating share price.
Balancing investment risk
Halma offers growth and consistency, albeit at a premium, while DCC provides a higher yield and potential recover potential if its energy focus pays off. A mix of the two could balance momentum and value, providing reliable income with some growth potential.
