City of London Investment Trust (LSE: CTY) has delivered 48 consecutive years of dividend increases, and carries a trailing yield of 3.8% at a current share price of 398p.
Picking great dividend shares has helped City of London outperform the FTSE All-Share Index over the past three, five and 10 years.
In his latest commentary, manager Job Curtis identified tobacco, real estate investment trusts and life assurance as “sectors with attractive income characteristics”. He said City has an overweight position in these sectors.
Results released last week show that City’s biggest bets in the three sectors, as of the half-year end, were British American Tobacco (LSE: BATS), Land Securities Group (LSE: LAND) and Prudential (LSE: PRU).
British American Tobacco
Some companies in “defensive” sectors — traditionally associated with reliable dividends — have let investors down of late. There’ll be no final payout from Tesco this year (and other supermarkets look set to reduce their dividends); water utility Severn Trent last month announced a “rebasing” (reduction) of its payout by 5% for 2015/16; and just last week British Gas owner Centrica announced a 30% rebase.
Meanwhile, tobacco companies continue to extend their magnificent records of paying ever-increasing dividends. Another annual rise is confidently expected from global giant British American Tobacco when it announces full-year results on Thursday, giving a yield of 4% at a current share price of 3,656p.
British American Tobacco will have delivered a compound annual growth rate (CAGR) in the dividend of 6% over the last four years; and analysts see the payout continuing to rise at the same CAGR for the foreseeable future.
Real estate investment trust Land Securities is the largest commercial property group in the UK. The company owns and manages more than 25 million square feet of property, from shopping centres to London offices.
Property companies were hit hard by the financial crisis and recession, and recovery has been protracted. Land Securities’ dividend CAGR of 2.3% over the last four years isn’t exactly scintillating, and a projected 2.6% yield (at a current share price of 1,230p), for the company’s fiscal year ending March 2015, is modest.
However, the future is looking brighter. Analysts are expecting dividend growth to accelerate to 5% in fiscal 2016, and 6% the following year.
Life assurance group Prudential has built a long and enviable record as a reliable dividend payer — which is particularly remarkable for a company in a sector that has seen more than its share of dividend disappointments in recent years.
Prudential has posted a near-9% dividend CAGR over the last four years, and analysts see the payout continuing to rise at the same impressive rate for the foreseeable future.
Investors are willing to pay a premium for Prudential’s best-in-class track record and strong growth prospects. As such, the expected dividend for 2014, when the company announces full-year results next month, gives a yield of just 2.2% at a current share price of 1,604p. However, with annual increases in the payout running at such a strong rate, the projected yield rises to 2.5% for this year and 2.7% for 2016.
As you may have deduced, the City of London investment trust doesn’t focus only on higher-yielding shares, but also looks for lower yielders that are increasing their payouts at a high or accelerating rate.
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G A Chester has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.