Are Centrica plc, BAE Systems plc and British American Tobacco plc the best dividend stocks EVER?

Over the last five years, British American Tobacco (LSE: BATS) has increased dividends per share at an annualised rate of 5.3%. This is a superb rate of growth during what has been a difficult period for the tobacco industry, with increased regulations and higher levels of counterfeiting causing cigarette volumes to come under severe pressure.

However, with British American Tobacco having excellent pricing power, it has been able to increase prices and generate higher sales and profitability. Looking ahead, there looks likely to be more of the same in this regard and with the company’s Vype e-cigarettes continuing to offer long-term growth potential, the prospects for British American Tobacco’s dividend growth are very upbeat.

With British American Tobacco yielding 3.9%, it offers a similar income return to the wider index. However, with stronger growth prospects as well as a more reliable business model than the vast majority of its index peers, British American Tobacco remains one of the very best income plays on the FTSE 100.

Enticing yield

Similarly, BAE (LSE: BA) has endured a challenging recent period, with the global defence industry coming under severe pressure. That has been due to austerity causing defence budgets to be slashed across the developed world and despite this, BAE has been able to deliver relatively strong financial performance. For example, it was able to increase earnings by 6% last year and while BAE’s bottom line is due to fall by 4% next year, it’s expected to return to growth next year.

With BAE yielding 4.4%, it remains a very enticing yield play. And with the prospects for the global defence industry being bright now that the US economy is recording upbeat economic data, BAE’s scope to raise dividends at a brisk pace should increase. Therefore, while its business model isn’t as stable as that of British American Tobacco, buying BAE now could deliver a superb income return over the medium-to-long term.

Uncertain outlook

Meanwhile, Centrica’s (LSE: CNA) income outlook is rather uncertain. That’s because the company is undergoing a period of major change as it seeks to move away from oil and gas production and towards being a more focused domestic energy supplier. While this should ensure a more robust and consistent business model, it’s likely to be a painful and costly transition, with the company’s recent announcement of a placing being evidence of that. But in the long term, a better business that has lower costs and is more efficient looks set to be created.

With Centrica yielding 6%, it remains one of the highest yielding stocks in the FTSE 100. Although a dividend cut can’t be ruled out, shareholder payouts are currently covered 1.25 times by profit which indicates that they’re affordable given current forecasts. As such, and while Centrica may not be a highly stable company at the moment, it has real income potential.

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Peter Stephens owns shares of BAE Systems, British American Tobacco, and Centrica. The Motley Fool UK has recommended Centrica. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.