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The FTSE 100’s Hottest Dividend Picks: British Sky Broadcasting Group Plc

Today I am explaining why I consider British Sky Broadcasting (LSE: BSY) to be a stellar dividend selection.

Chunky dividend growth expected to roll on

British Sky Broadcasting has remained a favoured pick for both income and growth hunters for many years now. Full-year results this month revealed that the effect of higher capital expenditure kept earnings per share remained on hold at 60p per share in fiscal 2014 — slowing skydown from the solid double-digit advances of previous years — but this did not prevent the firm from rewarding investors with yet another hefty dividend rise.

This broadly resilient earnings strength has enabled the business to lift full-year dividend at a blistering compound annual growth rate of 13.3% since 2010, culminating in a payout of 32p per share for the year concluding June 2014, up from 30p in 2013.

And an anticipated return to earnings growth is expected to underpin another advance this year — indeed, a 9% earnings improvement is expected to produce a 9% dividend rise, to 34.7p.

This forecast means that Sky currently offers a dividend yield of 4% for fiscal 2015, comfortably above a forward average of 3.2% for the FTSE 100 and usurping a relative readout of 3.4% for the complete media sector.

Solid cash flows boost payout prospects

On top of its bubbly earnings performance, Sky’s ability to churn out oodles of cash has enabled it to maintain an ultra-progressive dividend policy as well as generous share repurchase programme. Adjusted free cash flow registered at £1.01bn last year, down marginally from £1.04bn in 2013 but still a colossal reading.

On top of this, the satellite specialist’s predicted dividend for 2015 is also well protected by forecasted earnings, with dividend coverage of 1.9 times just below the widely-regarded safety standard of 2 times or above.

Despite the recent charge of BT Group and TalkTalk, Sky saw adjusted revenues rise 7% to £7.6bn last year due to a strong performance at its core operations. The number of new retail customers, at 342,000, represented the strongest growth rate for three years, while the number of new pay-TV subscriptions almost doubled from the previous year, to 264,000.

And the company is investing heavily in other areas to boost its customer base, from boosting its Sky Store movie rental service through to enhancing its Sky Go watch-as-you-move facility.

With the firm also shelling out almost £5bn to acquire Sky Italia and Sky Germany in recent days, a decision that should give the group improved financial clout and access to customers across the continent, I believe that the firm is well positioned to offer up improved earnings and dividend prospects to its shareholders.

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Royston Wild has no position in any shares mentioned. The Motley Fool recommends British Sky Broadcasting.