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4 Top Dividend Picks: Banco Santander SA, Centrica PLC, Pennon Group plc And Old Mutual plc

Santander

It may seem rather surprising to suggest that a company which recently slashed its dividend is an appealing income play. However, Santander (LSE: BNC) (NYSE: SAN.US), despite reducing dividends per share by over 60%, is just that.

In fact, it cut dividends so as to place itself on a firmer financial footing and, for long term investors, this seems to be a positive step. That’s because it means that Santander’s dividends are now much more sustainable and, following a severe share price fall of 17% in the last three months, Santander still yields a very impressive 3.6%. And, with its earnings set to grow at a double-digit rate over the medium term, its dividends could rise at a rapid rate, too.

Centrica

Another company that has slashed dividends per share but is healthier for it is Centrica (LSE: CNA). It decided to rebase its dividend and reduce it by 30% but, as with Santander, a sharp share price fall following the announcement means that Centrica still yields a very enticing 5.8%.

However, where Centrica really appeals is with regards to its future potential. Certainly, the next couple of months could be tough due to political uncertainty surrounding the General Election but, with a new management team, Centrica is likely to formulate its strategy in the coming months and begin its plans to become more efficient, leaner and, ultimately, more profitable. As such, now could be a good time to buy ahead of a more prosperous period for the company.

Pennon

One company that is not in the midst of dividend cuts is water services provider, Pennon (LSE: PNN). In fact, Pennon is forecast to increase dividends per share by 5.1% per annum over the next two years. This means that in financial year 2017 Pennon could be yielding as much as 4.3%, which is likely to still be a very appealing yield as a loose monetary policy is set to remain in place over the medium term.

And, with Pennon having much greater stability than many of its index peers, it appears to be a very reliable income play. Certainly, it may not offer the growth potential of stocks in other sectors but, if you are seeking a top notch income, it appears to be well worth buying.

Old Mutual

In 2010, Old Mutual (LSE: OML) paid dividends of 4p per share but, by 2014, this had more than doubled to 8.7p and means that the insurer now yields a very enticing 4.4%. Certainly, dividends may not double over the next five years, but such a strong growth rate in the past bodes well for the future, since it shows that Old Mutual is very shareholder friendly and is perhaps more likely, as a result, to increase shareholder payouts moving forward.

In addition, with dividends being covered twice by profit, Old Mutual’s payouts appear to be very sustainable and, as such, it offers considerable long term potential as an income stock.

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Peter Stephens owns shares of Centrica and Old Mutual. The Motley Fool UK has recommended Centrica. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.