When I’m looking for good dividends, a good yield alone will not satisfy me. No, what I also want is to see the dividend being lifted year-on-year by more than the rate of inflation, ideally significantly more, so that income over the next couple of decades will grow in real terms. And there are plenty of FTSE 100 shares doing just that:
There’s a magnificent 660% rise in the dividend for RSA Insurance (LSE: RSA) on the cards for this year — although obviously we won’t see lifts like that very often. The truth is that RSA’s overstretched dividend, like others in the insurance sector, had to be slashed in 2013 to 10p per share and then further pared to just 2p last year.
But we should be back to a well-covered 3% yield this year with 13.2p, and there’s a further 16% rise to 15.3p penciled in for 2016 to take it up to 3.5% on today’s 434p share price. With the firm looking more solid under new boss Stephen Hester, we should be on for a few years of inflation-busting rises.
Most wouldn’t consider chip designer ARM Holdings (LSE: ARM) as a dividend share, not with yields of under 1% forecast on the 1,164p shares. But when it comes to annual rises, it blows inflation out of the water. In fact, there’s a 22% dividend boost expected this year followed by a further 21% in 2016, and that comes after five years of annual gains of more than 20%. If you’d bought shares five years ago, you’d be set to enjoy a 3.6% dividend this year on the price you paid, and 4.3% next year — on top of your massive share gains.
Shares in investment firm Hargreaves Lansdown (LSE: HL) have more then trebled over five years to 1,237p. And over the same time, it’s been building its dividend steadily. There’s only a modest yield of 2.7% forecast for this year, but that would be 46% higher than the 2014 payout, and the City is expecting a further 14% boost in 2016. The 32.6p expected this year would be 3.8 times higher than the figure of just five years ago, and that’s the way to build long-term dividend wealth.
Airlines are risky investments, but you’d certainly have done well with easyJet (LSE: EZJ) of late. Not only have the shares more than five-bagged since mid-2011, but the dividends have been flying, too. With yields of around a respectable 3% on shares priced at 1,881p, we have boosts of 18% and 12% on the cards for this year and next — and that’s while inflation is running at zero percent, and we could even see it dipping into deflation this month.
And then we have high-street champion NEXT (LSE: NXT), which has averaged dividend rises of 18% per year since 2010, with a further 14% forecast for this year and 7% in 2016. At today’s price of 7,065p, that would provide a 2015 yield of a modest 2.4%. But in the long run, a modest dividend today being boosted well in advance of inflation is going to net you more cash overall than a bigger yield today that’s rising more slowly. And with NEXT’s dividends very well covered by earnings, they look safe too.
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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended ARM Holdings and Hargreaves Lansdown. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.