What This Top Dividend Portfolio Is Holding Now: BAE Systems plc, Standard Life Plc and Tate & Lyle PLC

Merchants Trust
(LSE: MRCH) has delivered 32 consecutive years of dividend increases, and yields 4.6% at a recent share price of 511p. Picking great dividend shares has helped Merchants outperform the FTSE All-Share Index over the past three, five and 10 years.

Merchants has recently been adding to its stake in BAE Systems (LSE: BA) (NASDAQOTH: BAESY.US), and building new positions in Standard Life (LSE: SL) and Tate & Lyle (LSE: TATE).

BAE Systems

BAE Systems has long been a top 10 holding for Merchants. The trust has recently increased its investment, following the FTSE 100 defence group’s announcement in February that profits for 2014 will be hurt by US defence spending cuts.

BAE said it expects earnings to decline 5-10% this year. However, the Board was also keen to stress that the company’s strong order backlog and robust balance sheet provide “a solid basis for growth over the medium term”.

Management increased last year’s dividend by 3%, and City analysts are forecasting a 2.5% rise to 20.6p for 2014. That represents a prospective yield of 4.9% at a recent share price of 423p, compared with 3.2% for the FTSE 100 as a whole.

Standard Life

Merchants has recently been building a new position in Standard Life. The trust reckons the FTSE 100 company is well positioned to benefit from regulatory and demographic changes with “a strong asset management platform, a growing corporate pensions business and a successful investment management business”.

Standard Life said it had made “a good start” to 2014 in a first-quarter update at the end of April, adding that “we remain very well positioned for the future and look forward with confidence to delivering growing returns for our shareholders”.

The board lifted last year’s dividend by 7%, and City analysts are forecasting a similar rise, to 16.9p, for 2014. That gives a prospective yield of 4.2% at a recent share price of 400p — a full percentage-point higher than the market.

Tate & Lyle

Tate & Lyle, which was demoted to the FTSE 250 in March, is another new addition to Merchants’ portfolio. The trust explained its decision to invest in the producer of corn syrup and speciality food ingredients as follows:

“The shares have been depressed by a profits warning over prospects for their sugar substitute, Sucralose. This took the shares to an attractive price which undervalues the transformation to higher value added products that is taking place within the business”.

Tate’s management says the company is “well placed to deliver growth in the longer term”, and raised the annual dividend by 5% — ahead of analysts’ expectations — when announcing results last week. A similar rise for 2013 would take the dividend to 29p, giving a prospective yield of 4.2% at a recent share price of 693p.

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G A Chester does not own any shares mentioned in this article.