Most FTSE 100 companies bang on about having a ‘progressive’ dividend policy. However, only a few make a real fetish of the dividend, and leave income investors in no doubt that the directors are running the business primarily to generate cash to hand over to shareholders.
Such a focus has other benefits for investors. For example, it enforces capital discipline, meaning you’re less likely to see chief executives engaging in ’empire building’, which can often destroy shareholder value.
Three blue chips that have really nailed their colours to the dividend mast are oil major BP (LSE: BP) (NYSE: BP.US), utility SSE (LSE: SSE) and insurer Admiral (LSE:ADM).
BP
BP was forced to suspend its dividend in the wake of the Gulf of Mexico oil spill in April 2010. However, the payout has been growing strongly again since Bob Dudley took over as chief executive in October 2010.
The recent collapse of the oil price has only served to confirm the strength of Dudley’s commitment to the dividend. He told us within the company’s annual results this week: “the dividend remains the first priority within our financial framework”. To that end, BP is scaling back exploration expenditure and postponing marginal projects in what Dudley expects to be a challenging phase of low oil prices through the near and medium term.
Analysts are forecasting a dividend of around 25p for 2015, giving a yield of 5.7% at a recent share price of 440p.
SSE
If you go to SSE’s corporate website or read its annual results, you’ll find the company tells you: “We believe that our first responsibility to shareholders is to give them a return on their investment through the payment of dividends”.
SSE has admirably fulfilled its responsibility, delivering increases in the dividend each and every year since the company was formed in1998 by the merger of Scottish Hydro-Electric and Southern Electric.
In a trading update last month, SSE confirmed that it expects the increase in its dividend for the year ending March 2015 to be at least equal to RPI inflation. Analyst forecasts give a yield of 5.5% at a recent share price of 1,615p.
Admiral
Popular motor insurer Admiral was founded in 1993 and joined the stock market in 2004. The company isn’t quite as vocal about its dividend as SSE, but its actions speak loud.
Admiral’s policy is to pay ordinary dividends of 45% of earnings, and special dividends on top — together amounting to the majority of earnings, which the company can afford because of its low capital business model. Since its 2004 stock market flotation at 275p a share, Admiral has paid out a total of 291p in ordinary dividends and 316p in ordinary dividends.
Analysts reckon the company will pay out 91p all told for 2015, giving a yield of 6.2% at a recent share price of 1,470p.
