For dividend chasers there are plenty of stocks on the FTSE 100 to be seduced by. BT offers yields north of 7%. SSE’slong-running progressive dividend policy means investors can enjoy a yield of around 7.7% for 2018. Lloyds Banking Group has grown dividends at a breakneck pace in recent years, and this year’s payout projection yields a massive 5.7%.
But buyers of these companies need to ignore the possibility of short-term gain and instead consider the strong likelihood of long-term pain. None of these three Footsie businesses are sound selections for those seeking strong and sustained income flows in the coming years, in my opinion.
I’d much rather stash the cash in one of these two FTSE 100 firecrackers.
National Grid (LSE: NG) might be boring, but the stability of its operations makes it an exceptional pick for those seeking reliable dividend growth.
Sure, the electricity network specialist is prone to earnings hiccups now and again, reflecting the heavy capital expenditure associated with its operations. But by and large the indispensable nature of its work, allied with its monopoly on the services that it provides, makes it a strong bet for those seeking decent profits growth over a long period.
And this bright outlook gives National Grid the sort of visibility required to allow it to keep growing dividends year after year. Reflecting this quality, City brokers are expecting the business, despite an anticipated 4% earnings reversal in the period to March 2019, to lift the dividend to 47.3p per share from 45.93p last time out.
In fiscal 2020 a 48.7p per share reward is forecast too, supported by a predicted 5% profits advance. Subsequent yields of 5.8% and 6% — allied with its low forward P/E ratio of 14.1 times — make National Grid a great income pick, in my opinion.
I believe that easyJet (LSE:EZJ) is another FTSE 100-quoted share whose cheap valuation, in this case a prospective P/E multiple of 12.9 times, does not match its exceptional growth outlook.
It’s no surprise that the likes of British Airways-owner IAG is trying to grab an increasing piece of the low-cost market, the firm furiously attempting to follow the launch of its cheap LEVEL brand last year with a takeover of Norwegian Airlines.
Latest trading details from easyJet underlined the rate at which the budget end of the travel market is growing, the Luton company recently announcing that, even though further industrial action from air traffic controllers remained a headache in July, the number of passengers on its planes still rose 4.5% year-on-year to 8.54m.
It should come as no surprise that City analysts are expecting profits at the Footsie flyer to jump 45% in the year to September 2018 and 18% next year, underpinning projections of additional, impressive dividend growth as well. Last year’s 40.9p per share dividend is anticipated to advance to 55.4p this year and again to 70.3p in fiscal 2019, figures that result in juicy yields of 3.6% and 4.6% respectively.
With the Footsie flyer still expanding furiously to latch onto this trend, I’m expecting both profits and dividend growth to keep impressing long into the future too.
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. 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.