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Why Dividend Hunters MUST Have Diageo plc & Vodafone Group plc In Their Sights!

Today I’m looking at two London-quoted income stars with strong prospects for dividend increases.

A tasty dividend treat

While yields at drinks giant Diageo (LSE: DGE) have hardly set the world on fire, I believe the business remains an appetising selection for those seeking dependable dividend growth.

Indeed, despite the business having swallowed chunky earnings dips during each of the past two years, Diageo has remained committed to lifting the dividend. As a result, payments have advanced at a compound annual growth rate of 8.7% during the past five years, a very decent performance given the circumstances.

And while the murky earnings outlook at many of the London Stock Exchange’s largest constituents are causing dividends to fall like dominoes, I believe Diageo’s sterling bottom-line prospects make it a much more secure income selection. Indeed, labels like Johnnie Walker whisky and Guinness stout carry strong brand recognition and formidable pricing power that keep revenues riding higher regardless of wider market pressures.

My bullish take on Diageo’s dividend prospects are backed up by current City projections. The business is expected to lift the shareholder reward to 58.4p per share in the 12 months to June 2016 alone, up from 56.4p last year and backed-up by an anticipated 1% earnings advance.

Even though a 3.1% yield continues to lag the FTSE 100 forward average of around 3.5%, I fully expect this reading to keep on improving. That should happen as profits from Diageo’s critical North American marketplace, not to mention those from emerging markets, gallop higher in the years ahead.

A terrific income transmitter

Like Diageo, I believe that Vodafone’s (LSE: VOD) dividend profile should keep on improving as revenues head higher in established and developing economies alike. On top of this, the receding impact of Vodafone’s colossal £19bn Project Spring organic investment programme also bodes well for investor payouts in the coming years.

Vodafone has pulled out all the stops to resuscitate the fortunes of its critical European marketplace, a region previously suffocated by regulatory hurdles and immense competition.

But with vast sums having been ploughed into improving its data and voice services, and acquisitions like Kabel Deutschland enhancing its cross-selling opportunities in the ‘quad play’ entertainment market, demand for Vodafone’s products is steadily stomping higher again.

Thanks to its robust cash flows and positive earnings outlook, Vodafone is now expected to lift the dividend yet again for the year to March 2016, despite analyst forecasts of a third consecutive annual earnings loss – a 12% bottom-line  slide has been anticipated.

Indeed, a reward of 11.22p per share last year is now predicted to rise to 11.5p for both fiscal 2016 and 2017, yielding a market-bashing 5.3%. With continental sales taking off again, and demand in development markets heading through the roof, I fully expect dividends to march higher beyond next year.

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Royston Wild 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.