Should You Invest In Dividend Legends HSBC Holdings plc & Centrica PLC?

Today I am looking at stocks with terrific track records in the dividend stakes.

A financial favourite

Global banking superstar HSBC (LSE: HSBA) has a sterling record of delivering meaty dividend increases year after year. The London business has lifted rewards at a compound annual growth rate of 9.1% since 2010, its solid capital base helping to offset heavy earnings fluctuations during this time.

And the City does not expect this upward trend to cease any time soon. Last year’s payment of 50 US cents per share is anticipated to rise to 51 cents in 2015, and a further hike to 52 cents is pencilled in for 2016.

Sure, these projections obviously indicated a marked slowdown in payout growth from previous years, as HSBC battles moderating revenues expansion and saves cash in anticipation of heavy regulatory fines concerning previous product mis-selling, the tax evasion scandal at its Swiss arm, and so forth.

Still, investors should not lose sight that the bank still carries monster yield of 6.4% through to the close of 2016.

And looking beyond next year, I expect dividends at ‘The World’s Local Bank’ to gather a head of steam once current bumpiness in the world economy — and particularly in the firm’s sweetspots of China and South-East Asia — abates, and sales in developed and emerging markets alike surge higher.

And with HSBC’s cost-cutting initiatives also clicking through the gears, I believe the bank should have the capital clout to deliver increasingly-delicious dividends in the years ahead.

Power play under pressure

I am not so optimistic concerning the payout potential of energy giant Centrica (LSE: CNA), however. Historically the utilities sector has been a magnet for investors seeking reliable dividend rises, the indispensable nature of their operations providing terrific earnings visibility.

But the emergence of independent energy suppliers, combined with increasing pressure from regulators, politicians and consumer groups alike for ‘Big Six’ operators to curb tariffs, has put revenues heavily under the cosh. As a result Centrica was forced into the rare step of slashing its dividend in 2014, to 13.5p per share from 17p in the prior year.

And the City does not expect the pain to cease just yet, and an additional cut — to 12p — is chalked in for the current period. A subsequent yield of 5.7% may be enough to tempt some dividend chasers, but I for one won’t be piling into the firm any time soon.

Centrica may have soothed investor nerves today by announcing that its full-year earnings outlook remains “in line with expectations.” But the operator’s customer base continues to steadily erode, and although Centrica advised that the number of residential accounts at British Gas remains “largely unchanged” from June, I fully expect its full-year update to reveal further subscriber slippage.

And while the firm continues to cut expenses and slash capex to adjust to a falling top line, the prospect of further weakness at its retail operations — not to mention the threat posed by collapsing crude prices for its upstream arm — makes Centrica a dicey stock selection in my opinion.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Centrica and HSBC Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.