There’s no shortage of brilliant FTSE 100 big yielders that could make you a pretty penny in the near term but ultimately fail you in your attempts to build a juicy retirement nestegg.
Take Lloyds Banking Group, for example. It may have the financial strength to make good current dividend estimates through to the close of next year that yield more than 5% . However, the rocky outlook for the UK economy casts a cloud over the bank’s ability to keep paying above-average dividends.
If I were seeking blue-chip stocks with a great dividend profile stretching long into the future, one of the stocks I would rather splash the cash on today is Halma (LSE: HLMA).
A safe pair of hands
Now the Footsie firm may not carry the same sort of formidable yields as Lloyds, but I remain convinced it is in much better shape to keep growing shareholder rewards year after year.
The company — whose mission statement is to provide products and services dedicated to “protecting life and improving the quality of life for people worldwide” — has grown dividends each and every year by more than 5% for the past 39 years.
And supported by predictions of further decent earnings growth (of 6% and 8% in the years to March 2019 and 2020 respectively), City analysts are not expecting this run to end any time soon. Last year’s 14.68p per share payout is anticipated to rise to 15.7p this time and again to 16.8p in fiscal 2020.
As I say, subsequent yields may not be enough to bowl you over, coming in at 1.1% and 1.2% for this year and next. But you can put the house on Halma making good on these near-term projections, unlike many of its Footsie compatriots and their own corresponding projections. That is particularly so as the yield would be covered 3 times by earnings through to the close of next year, sailing above the widely-considered security benchmark of 2 times.
Halma has posted record revenues and profits for 15 years on the bounce. Its broad range of products, supplied to a wide array of industries across the globe provides it with the sort of diversification essential for reliable earnings and thus dividend expansion year after year.
And the company’s commitment to mergers and acquisitions bolsters its chances of keeping the run going, Halma having spent £116m on five purchases last year and currently boasting a “healthy acquisition pipeline” with which to continue expanding the group. It certainly has the financial firepower to keep its M&A strategy rolling, adjusted operating cash flow improving 9% in the 12 months to March, to £190.4m.
At current share prices Hamla carries a forward P/E ratio of 28.9 times. While that is toppy on paper, I actually think that this is a snip given its proven pedigree as both a top growth and income stock.
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Halma. 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.