Not all shares provide income. Of those that do, some are unstable. Their dividends move around or are sometimes cancelled. That is one reason I am attracted to UK shares I think will keep growing their dividend payouts. There’s nothing certain in investing, but an expectation of a growing income from a share can make it more attractive to me.
Here are two blue-chip UK shares I’d pick now for a growing income.
A clear dividend policy
Insurers make a living from being very precise about calculations and probabilities. So it may come as no surprise that Legal & General (LSE: LGEN) has set out its dividend plans for the coming years.
The well-known insurance brand owner has said that it will hold its dividend flat for a year, then plans to increase it annually by a low- to mid-single digit percentage. That might not sound like a lot, but I find it attractive for a number of reasons.
First, the company already has an attractive yield. These UK shares yield over 6%, which I think is highly agreeable for a well-known large company like this. Secondly, the increase is realistic. Instead of overpromising and then having to slash payouts down the line, I think a modest forecast increase based on expected business results is prudent. The power of compounding means that even with a modest increase, returns should improve over time.
Insurers and fund managers do make dividend cuts – rival Aviva made one last year, for example. The pausing of dividend increases for a year is already a sign to be alert to the dividend’s sensitivity to economic conditions. But with a 6% yield and expected dividend growth ahead, I would be happy to hold Legal & General in my portfolio.
I hope to clean up with these UK shares
Like Legal & General, another company whose UK shares have increased dividends in the past few years is Unilever (LSE: ULVR).
The consumer goods giant pays out quarterly. Last year it raised dividends by about 3.6%. Dividends are covered by earnings and the pandemic has boosted demand for brands such as Domestos, so I expect the dividend to stay covered. With its history of raising dividends, I expect the payout to keep on growing. However, that depends on the direction the business takes.
Lately, some analysts seem to have been underwhelmed by Unilever’s growth rate. The shares have fallen and the company is now valued at less than the offer from Warren Buffett that it previously rebuffed.
That might bode poorly for the dividend, but I am optimistic as its brand portfolio gives it pricing power. The share price fall also means the yield has risen. Currently Unilever yields 3.9%. For a blue-chip global consumer goods company, I find that attractive and have recently taken action and bought some Unilever shares.
christopherruane owns shares of Unilever. The Motley Fool UK has recommended Unilever. 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.