Despite recently cutting dividends by 30%, Centrica (LSE: CNA) remains a great dividend play. For starters, it currently yields 4.7% and, despite its bottom line coming under pressure due to a lower oil price, it still has scope to increase dividends over the medium to long term.
For example, Centrica currently pays out around two-thirds of profit as a dividend and, while it is undergoing a transitional period with a new management team set to update its strategy, the company’s payout ratio could move upwards over the medium term. This, combined with a bottom line that is forecast to rise next year, shows that Centrica remains a top notch yield play.
While Unilever (LSE: ULVR) is better known for its vast exposure to emerging markets (from where around 60% of its revenue is derived) as well as its strong growth potential, its dividend prospects are equally appealing.
For example, Unilever currently yields 3% at the present time and, when you consider that it is expected to increase its bottom line by 10% this year and 8% next year, dividends per share could be all set to head northwards at a rapid rate. Furthermore, investor sentiment in Unilever appears to be strong, with shares in the consumer goods company posting gains of 11% in the last year. This could help to push them upwards, with investors being attracted by Unilever’s income prospects as well as its growth potential.
With a yield of 4.4%, Imperial Tobacco’s (LSE: IMT) appeal as an income stock is clear. However, things could get much better for investors in the company, with growth in dividends of 12% forecast for next year. This puts Imperial on a forward yield of 4.9%, with more growth to come over the medium term as the company’s bottom line moves upwards at a similar pace to the wider index.
And, while Imperial’s payout ratio is set to be 73% next year, it could go much higher due to the stability and consistency offered by the company’s revenue stream. As such, and while cigarette volumes are falling, Imperial remains a great dividend play with long term growth potential via e-cigarettes.
Having increased dividends per share at an annualised rate of 5.9% during the last four years, United Utilities (LSE: UU) remains one of the most consistent dividend stocks on the FTSE 100. And, allied to that, the water services company has seen its share price rise by 53% during the period, with total returns of 75% showing that there is more to the utility sector than just great yields.
And, looking ahead, United Utilities offers a great defensive option in case market sentiment declines. Its beta of 0.85 provides reduced volatility for its investors, while a yield of 4% highlights that despite its aforementioned price rise, United Utilities still offers one of the higher yields among FTSE 100 stocks.
Although Drax (LSE: DRX) is also a utility stock, with it operating a coal/biomass fuelled power station in Yorkshire, its performance is much more volatile than you would expect of a company sitting in such a stable sector. That’s at least partly because Drax is undergoing a major change as it shifts away from using coal to becoming a greener, biomass electricity generator.
And, with Drax’s profit set to fall by 33% this year, investor sentiment could come under more pressure in the short run and boost its forward yield of 2.7%. However, in the medium to long term, Drax appears to have a bright future, with net profit forecast to rise by 21% next year and provide scope for a dividend increase, with dividends set to be covered a very healthy 1.8 times by profit.
Peter Stephens owns shares of Centrica, Imperial Tobacco Group, Unilever, and United Utilities Group. The Motley Fool UK has recommended Centrica. The Motley Fool UK owns shares of Unilever. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.