Investors on the lookout for strong and sustained dividend growth in future years should pay Britvic (LSE: BVIC) close attention.
The FTSE 250 beverages maker, helped by a lengthy record of earnings creation, has been beefing up the annual payout for many years, culminating in last year’s 8.2% year-on-year hike to 26.5p per share.
And with profits expected to keep creeping higher — rises of 1% and 5% are forecast by City brokers for the periods ending September 2018 and 2019 respectively — this progressive policy is predicted to keep running.
A total payment of 27.3p is projected for fiscal 2019. And next year this moves to 28.7p. As a consequence, yields for these years stand at 3.9% and 4.1% respectively.
A bubbly selection
There’s plenty of reason to expect profits and dividends to keep marching northwards too.
I have spoken before about my confidence that Britvic can successfully hurdle the worst of the impact of the UK sugar levy. Only a small percentage of its products are punishable by the tax, and the labels that do fall within the lines of the levy have such splendid brand power that the company should be able to pass the additional costs onto its customers with no little success.
Britvic has seen organic sales across a number of its markets slip more recently due to difficult conditions in some of its territories like Britain and Brazil. However, I am convinced that its broad geographic wingspan should underpin decent profits growth in the years ahead, helped by a steady stream of product releases (a fresh batch of which are slated for the current quarter).
What’s more, its ongoing efforts to cut the cost base should also help it to ride out current trading troubles and keep earnings on an upward slant for the time being, providing further support for those all-important dividends.
I believe a forward P/E ratio of 13.2 times is far too cheap given its solid long-term sales outlook, and it rubber stamps my enthusiastic take on Britvic right now.
Shake and bake
Greggs (LSE: GRG) is another great bet for those seeking reliable dividend growth, in my opinion.
While much of the high street may be suffering from the fallout of compromised consumer spending power at the moment, Britons’ love of a cup of tea and a sausage roll can usually weather the worst of testing economic conditions and it has proved to be the case at Greggs.
The FTSE 250 baker saw like-for-like sales rising 3.7% in 2017. It’s true that rising costs have been a pain in the neck for the business over the past year, but with these pressures beginning to ease and Greggs busy investing in its product ranges and supply chain, I am confident that earnings should keep on rising.
The City thinks so as well, and the Square Mile is predicting earnings expansion of 6% and 9% in 2018 and 2019 respectively. As a result, dividends are expected to keep growing as well — last year’s 32.3p per share reward is expected to grow to 37p this year and again to 41p in 2019.
Consequent yields of 3.1% and 3.4% make Greggs a tasty buy today, even if a prospective P/E ratio of 17.9 times is, on paper at least, a little less appetising.
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Britvic. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.