What This Top Dividend Portfolio Is Holding Now: BAE Systems plc, SSE PLC And Pennon Group plc

Merchants Trust (LSE: MRCH) has delivered 32 consecutive years of dividend increases. At 484p, the trailing yield is 4.9%.

Picking great dividend shares has helped Merchants outperform the FTSE All-Share Index over the past three, five and 10 years.

BAE Systems (LSE: BA), SSE (LSE: SSE) and Pennon Group (LSE: PNN) are three top 10 holdings the trust has overweighted compared with the FTSE’s index.

BAe SystemsBAE Systems

Aerospace and defence firm BAE Systems is currently having to contend with constrained defence spending in its major UK and US markets. However, that’s partially offset by a continuing high level of activity in international markets, particularly Saudi Arabia where the BAE has a substantial presence.

Still, there’s no getting away from the fact that revenues and earnings continue to be subdued, and management’s caution is reflected in modest increases in the dividend of late. Last year’s rise was 3.1%, while the Board has recently announced a 2.5% increase to this year’s interim dividend, for which the ex-dividend date is 23 October.

On the plus side, the potential income for the year is 4.9% at a share price of 421p. So, a nice yield while waiting for more favourable market conditions to start driving earnings higher again.


The big energy companies are facing political ire and regulatory review at the moment. With the run up to a General Election next year, it’s a no-brainer for politicians to ‘stand up’ for the consumer.

In 2011, SSE’s chairman, Lord Smith of Kelvin, introduced the company’s annual results with the words “SSE’s key financial objective is to deliver above-inflation increases in the dividend every year, and this has again been achieved”. This year’s introduction began: “SSE is listening to and helping customers with the longest ever household energy price freeze in the Great Britain market”.

Despite the politically prudent change of emphasis, SSE still retains dividend growth as a key financial objective — albeit toned down to increases that “at least keep pace with RPI inflation”.

The Board upped last year’s dividend by 3%, and analysts are expecting more of the same this year and next. The prospective income for the current year is a terrific 6.2% at a share price of 1,455p.

Pennon Group

Water utilities have faced their share of politicians putting the boot in, but are out of the spotlight at the moment with political posturing focused on the energy companies.

Merchants Trust favours FTSE 250 water utility Pennon Group over larger sector peers United Utilities and Severn Trent. Pennon is distinctive in that while it owns one of the UK’s regulated water businesses — South West Water — it also has significant diversification through its ownership of waste management company Viridor.

Pennon increased its dividend last year by 6.5%, in line with a sector-leading policy of increasing the annual dividend by 4% above inflation. The policy runs until the company’s 31 March 2015 financial year end at which point it will be reviewed. The prospective yield is decent, if not spectacular: 4.1% at a current share price of 786p.

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G A Chester has no position in any shares mentioned. The Motley Fool has no position in any of the shares mentioned.