Investors just starting out often underestimate the power of FTSE 100 income stocks. Too many focus on share price growth, but over time, companies with a habit of regularly increasing their dividends offer real wealth building potential.
Share price growth can be volatile, but companies that pay long-term shareholders consistent income year after year can smooth out the ups and downs. Especially if they lift payouts every single year, giving investors a rising income too.
By reinvesting those dividends year after year, investors’ build up their stake in the company, so each future dividend payment is worth even more. That’s the magic of compound returns, and can turn a small portfolio into something substantial over time.
Some FTSE 100 companies have outstanding dividend growth records, including these five. All have increased their payouts for at least 25 consecutive years, and in some cases much longer. This doesn’t guarantee future payments, but it’s a jolly good sign.
Consistent shareholder payouts
Global health and safety technology specialist Halma has lifted its dividend for an astonishing 45 years in a row. The shares have done well too, up 40% in the last year and 90% over two. They’re not cheap, but that’s because they’re highly prized.
Scottish Mortgage Investment Trust has increased its dividend for 33 years, yet the yield looks tiny at just 0.4%. That’s because the share price has surged 31% over one year and 75% over two. Yields are calculated by dividing the dividend per share by the share price, so fast-growing shares may have a surprisingly low yield. Don’t be misled.
Defensive stock opportunity
I recently bought Bunzl, which supplies essential goods to businesses worldwide and has grown rapidly through acquisitions. The share price has dropped around 30% in a year, and I saw that as a buying opportunity. That fall pushed the yield to around 3%. Bunzl has increased its dividend every year for more than three decades. I’m hoping for more of the same.
British American Tobacco (LSE: BATS) also boasts a remarkable dividend streak running more than 25 years. The shares are up 44% in the last year, yet the trailing yield still sits at a rich 6.2%.
Sage Group is a dividend hero
The Sage Group (LSE: SGE) develops accounting and payroll software for businesses around the world. It has lifted its dividend every year since 1988, compounding at around 5.35% a year over the last decade. The yield looks modest at 1.8%, but that reflects the market’s confidence in its long-term prospects.
The Sage share price has been more volatile lately, and is up a modest 9% in the last year. Yet, the underlying business looks solid, with Q3 revenue up 9% to £1.86bn. This may offer investors a rare entry point. However, it still isn’t cheap, with a price-to-earnings ratio of around 30.
The danger is that expectations are so high that any profits wobble could knock the share price. Sage also faces competition from AI, which could allow clients to take business in house, and cloud-based software.
Yet, given its stellar dividend track record, I still think Sage is worth considering today. As ever, investors should only buy with a long-term view, and allow time for their dividends to compound and grow.
