I’m not a fan of the tobacco sector. While profits may be dependable, I have fears for the industry in the long-term. With its interim results, the company reported a 6% decline in cigarette sales and a 3% drop in earnings per share (EPS). After decades of success, Imperial Tobacco (LSE: IMT) is now looking rather weak.
However, this didn’t stop the company increasing its interim dividend by 11%. That rise is in line with dividend increases of the last five years.
Analysts are forecasting 9% EPS growth this year. That figure now seems ambitious. Shareholders must ask themselves if the factors that led to the fall in sales in the first half will continue to dog the company into the future.
Catering and outsourcing specialist Compass Group (LSE: CPG) paid a dividend of 5.7p for 2002. By 2012, the payout had reached 21.3p. In the last five years, the company has been increasing its dividend at an average rate of 15.6% per annum.
That success has seen the shares rise 150% in the period. As Compass continues to expand into new territories, further substantial increases in earnings and dividends are forecast.
According to the consensus of analyst forecasts, Compass Group’s EPS is set to rise by 9% this year and 10% the next. Dividends are expected to increase by 10% in 2013 and 9% next year.
That puts the shares today on a 2014 P/E of 17.3, with a prospective yield of 2.9%.
British Sky Broadcasting Group
Year-on-year, British Sky Broadcasting (LSE: BSY) manages to sell more products to more people at a higher price. This success then flows through to shareholder dividends. Since 2007, Sky has been increasing its payout at an average rate of 10.4% per annum.
Recent financial statements show no sign of this growth ending.
In the nine month period ending in March, Sky’s average customer was paying £576 a year. That’s a £30 increase on last year. This delivered revenues 6% higher and EPS 16% ahead of one year ago.
Sky will soon be facing more competition in the pay TV market from BT. Obviously, a successful challenge could hamper future dividend growth.
The shares today trade on a 2014 P/E of 14, with a forecast yield of 3.7%.
While the dividend records of these companies is impressive, our analysts believe that there is a better dividend stock in the FTSE 100. Their report “The Motley Fool’s Top Income Share For 2013” gives the lowdown on their top pick and is available free of charge. Just click here to get your copy today.
> David does not own shares in any of the above companies.
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