3 Dividend Shares That Are Set To Beat The FTSE 100: Aviva plc, Imperial Brands PLC And United Utilities Group PLC

Dividends are set to remain in vogue since interest rate hikes are likely to be slow and steady. Therefore, many investors will need to make up their lack of interest income on other assets such as bonds and cash, so becoming increasingly reliant on shares to provide a 4%-plus after-tax income per annum.

One company that ticks the 4%-plus yield box is life insurer Aviva (LSE: AV). Its shares presently yield 5.1%, but there’s a lot more to Aviva than just a high yield. That’s because the company is in the midst of a major transition as it seeks to become a dominant life insurance company following the acquisition of Friends Life. This should lead to significant synergies and according to Aviva, it’s making encouraging progress in this regard.

Looking ahead, Aviva is forecast to report a rise in earnings of 11% next year, which means that as well as having a FTSE 100-beating yield, it has growth prospects which are around 50% higher than the wider index. And with Aviva trading on a price-to-earnings (P/E) ratio of 10.1 versus around 13 for the FTSE 100, it seems set to comfortably outperform the wider index over the long run.

Imperial standard

Likewise, Imperial Brands (LSE: IMB) also offers FTSE 100-beating prospects. Unlike Aviva, it trades at a premium to the wider index due to it having a rating of 16, but this appears to be rather cheap when compared to other global consumer stocks. In fact, it’s not unusual for P/Es of over 20 to be considered fair value for such major global consumer plays. And with Imperial having an extremely stable earnings profile and a high degree of revenue visibility, it offers excellent defensive prospects, too.

In addition, Imperial has a yield of 4.1%, which is slightly ahead of the FTSE 100’s yield. And with its dividends due to rise by almost 10% next year and having the scope to match that rate over the medium term, it could soon be yielding over 5% or even 6% from an initial investment made today. While cigarette volumes may be declining, e-cigarettes hold huge growth appeal and could transform Imperial’s bottom line in the long run.

United we stand

Meanwhile, United Utilities (LSE: UU) yields 4.2% right now and the water services company has already beaten the FTSE 100 by 9% in the last year. Looking ahead, further outperformance is on the cards since uncertainty remains high among investors. Although United Utilities may not offer superb bottom line growth prospects, it’s a very stable and resilient business which could be a major ally during a downturn.

And with a Brexit and a weak Eurozone economy having the potential to pull down the FTSE 100 in the short run, United Utilities could easily keep on beating the wider index during the remainder of 2016. That’s especially the case if the water services sector remains a potential bid target for infrastructure funds ahead of the liberalisation of the water services market next year.

Today’s results show that United Utilities is on track to meet full-year guidance and is benefitting from low inflation. This has reduced the interest expense on its debt and partly because of this, it seems well-positioned to deliver upbeat performance over the medium term. Today’s update also confirms the joint venture between United Utilities and Severn Trent, which should boost synergies and improved profitability in the long run.

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Peter Stephens owns shares of Aviva, Severn Trent, Imperial Brands and United Utilities. 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.