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These 2 FTSE 100 companies are my best dividend stocks of the past decade. I’d buy them today

If you want to decide if a company’s a dividend hero, you look at the current yield, don’t you? Wrong. What really matters is dividend growth, according to new research from AJ Bell.

The wealth platform shows companies that consistently grow their dividend, year after year, deliver the best returns, both in terms of income and capital growth.

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It came to this conclusion after examining the 26 companies on the FTSE 100 that have increased their dividend every single year for the last decade. Currently, they return just 3.1% on average, well below the 4.8% average across the FTSE 100. But in growth terms, they’re unbeatable.

Ashtead Group

The top FTSE 100 dividend stock over the last 10 years is equipment rental specialist Ashtead Group (LSE: AHT). If you had invested £1,000 in 2009, you’d be getting dividends totalling £531 a year, a return of 53.1% on your original investment. 

This unsung investment hero has also delivered regular share price growth, jumping 130% over five years, and 20% over the last year. Ashtead has been boosted by its massive exposure to the US economy, so no Brexit worries here. 

Ashtead’s North American subsidiary, Sunbelt, generates an astonishing 90% of group earnings and more than £1bn of profits, which has helped to offset weaker UK margins. The big concern is that the US economy will slow, but with the Fed cutting rates, that’s less of a worry.

The £11bn group trades at just 11.1 times forward earnings, which is surprisingly low given its healthy share price outperformance and rapidly rising revenues. It has posted double-digit earnings per share growth for each of the last five years, ranging from 22% to 37% a year. There are signs of a slowdown though, with City analysts forecasting earnings growth of ‘just’ 17% in the year to 30 April 2020, and 11% the year after.

Ashtead’s current yield is just 3.5%, but management remains committed to a progressive dividend with consideration to both profitability and cash generation that is sustainable through the cycle.” In this respect, it has good form.

St James’s Place

Next best dividend stock of the decade, financial advisory group St James’s Place (LSE: STJ), trails some way behind. If you’d invested £1,000 a decade ago, you’d currently draw £183 a year in dividends, a yield of 18.3% calculated on your original investment. Current forecast yield is 4.7%, although cover is low at 0.7.

The St James’s Place share price is up 10% in the last month, as strong customer net inflows drove funds under management to a record £112.8bn, even if the rate slowed slightly amid “an uncertain external environment.”

St James’s Place draws regular criticism for overcharging its customers but investors have nothing to complain about, as the group has increased its payout at a compound annual rate of 25%.

In July, management froze its interim payout at 18.49p per share, after short-term profits were hit due to extra investment in the group’s partnership network and academy, and its Asian and Rowan Dartington operations. 

Another concern is that it’s expensive, trading at 28.7 times earnings, due to a projected 39% earnings drop this year (they’re expected to jump 42% next).

Despite that, both these dividend heroes look nicely set for another decade of income and growth.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.