Investing in companies that consistently lift their dividends (dividend growth investing) can be a profitable long-term investment strategy. Not only do you pick up a larger cash payout every time a company increases its dividend, but you also often enjoy share price appreciation over time, because a rising dividend tends to place upwards pressure on a company’s share price. With that in mind, here’s a look at three FTSE 100 companies that have recently announced dividend increases.
Alcoholic beverages company Diageo (LSE: DGE) released a good set of full-year results in late July. The group’s performance for the year was robust, with net sales rising 5.8%, operating profit climbing 9.5%, and pre-exceptional earnings per share rising 10.3%. As a result, investors were treated to a 5% increase in the final dividend, with the full-year payout rising to 68.6p per share, up from 65.3p per share last year.
When it comes to FTSE 100 dividend growth stocks, Diageo is a true champion, as the company has now notched up 21 consecutive dividend increases. And there’s no reason to believe that the dividend growth will stop any time soon either as dividend coverage is healthy, and analysts forecast growth of just under 7% this year and next.
Are Diageo shares priced to buy right now though? In my view, no. The stock has had a fantastic run over the last year, rising 35%, and this has pushed its P/E ratio up to 26 and its prospective yield down to 2%. I’d wait for a more attractive entry point.
Smith & Nephew
Hip replacement specialist Smith & Nephew (LSE: SN) is another FTSE 100 company with a fabulous dividend track record. It has paid a dividend every year since 1937, which puts it in an elite group of companies, and it has notched up 18 consecutive dividend increases now making it a top dividend growth stock.
Smith & Nephew released its half-year results in late July and rewarded investors with another dividend increase. With cash generated from operations jumping 30% for the period, the group took the opportunity to increase its interim payout to $0.144 per share, up 3% on the interim dividend last year. Looking ahead, analysts expect a full-year payout of $0.39, up from $0.36 last year.
Is now the time to be buying Smith & Nephew shares? Personally, I’m not seeing much value at present. This is a stock I’d love to own for the long term, but with the share price up nearly 40% this year, and the stock now yielding just 1.6%, I think it’s worth waiting for a better entry point.
Finally, there’s Croda (LSE: CRDA), an under-the-radar company that makes speciality chemicals for a number of industries including cosmetics, healthcare, and farming. It’s another FTSE 100 dividend growth champion, having notched up 20 consecutive dividend increases now.
Croda released its half-year results in late July, and the numbers weren’t great. While sales rose 1.7% for the period, profit before tax fell 2.7%. However, the company still hiked its interim dividend by 3.9% to 39.5p per share, which was a good result for dividend growth investors. The prospective yield on offer is currently 2.5%.
Croda share’s price has fallen around 12% over the last six weeks, but I still view the stock as a little expensive, as the forward P/E is currently 24.6. This is a stock I’m keen to add to my dividend portfolio, but I’d prefer to buy it at a lower valuation.
Of course, picking the right shares and the strategy to be successful in the stock market isn't easy. But you can get ahead of the herd by reading the Motley Fool's FREE guide, "10 Steps To Making A Million In The Market".
The Motley Fool's experts show how a seven-figure-sum stock portfolio is within the reach of many ordinary investors in this straightforward step-by-step guide. Simply click here for your free copy.
Edward Sheldon owns shares in Diageo. The Motley Fool UK has recommended Diageo. 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.