Why Dividends Should Keep On Rising At Vodafone Group PLC, Legal & General Group Plc & BAE Systems plc

Today I am looking at the investment prospects of three British dividend stars.

Insurance giant on the rise

Despite fears of global economic cooling on many of the world’s biggest payout plays, I reckon Legal & General (LSE: LGEN) has what it takes to continue building dividends year after year.

Legal & General has invested vast sums into developing its suite of products in line with changing demographic and regulatory trends, work that continues to generate handsome returns. Meanwhile, Legal & General is also improving the digitalisation of its business as well as creating broader emerging market exposure to ensure solid long-term returns.

As a result, the City expects earnings to rise a further 7% rise this year, following on 2015’s projected 14% advance. And the company’s ongoing streamlining scheme — Legal & General added SIPP-specialist Suffolk Life to its divestment list this month — is helping to boost its already-plentiful cash coffers, another bullish sign for dividend chasers.

 Consequently Legal & General is anticipated to raise a predicted dividend of 13.4p per share for 2015 to 14.3p this year, creating a jumbo yield of 5.4%. And I see no reason for the company’s progressive payout policy to run out of steam any time soon.

A defensive darling

In times of macroeconomic uncertainty, the defence sector has long proved to be a popular pick for both growth and income investors. The desire for countries to build their armies has been one of life’s constants for centuries now, a phenomenon I believe should make BAE Systems (LSE: BA) a lucrative stock selection in the years ahead.

BAE Systems’ expertise across a wide range of hardware sectors has made it a critical supplier to the US and UK militaries, and I am convinced a backdrop of rising geopolitical tension should continue to drive demand for the firm’s products. Om top of this, the strength of BAE Systems’ defence goods are making it an increasingly-popular supplier to developing markets, too.

The number crunchers expect BAE Systems to recover from recent earnings bumpiness and punch a 5% advance in 2016. As a consequence the arms builder is anticipated to hike the dividend to 21.5p per share from an estimated 20.8p last year, nudging the yield to 4.2%.

Ring up a fortune

Concerns over the colossal investment costs over at Vodafone (LSE: VOD) have led many to speculate whether the company will put paid to its positive dividend policy in the near future. I do not share these concerns, however, and believe the telecoms giant’s rapidly-improving sales outlook in both Europe and developing markets should continue to underpin plump payout growth.

This view is shared by the City’s army of analysts — Vodafone is expected to lift the dividend from 11.22p per share in the year to March 2015, to 11.5p in the current period, creating a chunky 5.2% dividend.

Even though earnings are expected to struggle a little longer thanks to previous sales problems, a gradual decline in Vodafone’s Project Spring capital drain — combined with a healthy cash position — should help keep dividends on an upward keel, particularly as earnings look set to shoot higher from 2017 onwards.

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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.