I’ve scoured the list of the largest FTSE companies that have raised their dividends every year for at least five years, and have also seen their share price rise over the same period.

It wasn’t an easy task.

Of the largest UK public companies, only a handful meet this strict criteria.

Growing dividends at the same time as growing profits is an exceedingly difficult thing to achieve.

Why? Well, if a business commits too much of its free cash flow to paying out dividends to shareholders, that money can’t be used to expand its business. It also can’t use that spare cash for investing in new technology or acquisitions. These moves can often boost revenues or profits.

But the companies that manage the task are going straight to the top of my watchlist. If I want to have enough cash to retire, I’ll need an ISA or SIPP stacked full of these compounding giants.

Growing by buying

Bunzl (LSE:BNZL) is not the kind of flashy stock beloved by forum posters who debate its price day in and day out. But it is a consistent and predictable profit-making machine.

The £10bn FTSE 100 industrials company sells its products in more than 30 countries. These products include medical gowns, disinfectants, and food packaging. By themselves, these may goods with low profit margins. But they make Bunzl an incredibly important supplier for thousands of businesses worldwide.

Bunzl also has a successful acquisition strategy, spending £4.5bn to buy up more than 190 smaller businesses since 2004.

Since 2017, net profits — also called a company’s “bottom line” — have grown by 90%.

So let’s talk about the dividends on offer here. WIth a share price of 2,492p at time of writing, and four payouts a year of 57.72p, that works out to a 2.15% dividend yield. It’s not a king’s ransom by any stretch.

But Bunzl has grown its payouts to income investors for more than 23 years! The share price is also 40% higher in the last five years.

While this is unlikely to light anyone’s world on fire, it has been consistent and predictable. For me, that’s crucial. I’ve wasted enough money on illiquid, lottery-ticket stocks to know the difference between promises and results.

Long-term strategy

As a long-term compounding growth investor I want to avoid FTSE companies with patchy or inconsistent records.

I have to think like Warren Buffett and remember that I’m buying a business — not just a story. This is in my mind every time I invest in dividend stocks and shares.

That high share price of almost £30-a-pop may put off newer or younger investors who are used to being able to buy fractional shares in low-cost broker accounts. I could consider this a downside, as it may deter fresh capital from coming into the business.

But as we heard from HMRC in October 2023, fractional shares don’t qualify for the tax advantages of being held in an ISA.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

I’m focused on steadily growing my net worth over the next 15 years or so before I retire. I’m not a joyless automaton, but I’ll leave my gambling to the odd bet on the football rather than risking my retirement cash.

The post FTSE dividend hero alert! I think I can retire on these UK shares appeared first on The Motley Fool UK.

More reading

• 1 FTSE 100 stock that could benefit from higher inflation
• As the stock market closes in on a correction, where are the buying opportunities?

Tom Rodgers has no position in any of the shares mentioned. The Motley Fool UK has recommended Bunzl Plc. 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.

The Bank of England has now warned that inflation could rise above 5% by the beginning of 2022. How, as a Foolish investor, can I respond?

One option would be to pay more attention to stocks that have a solid record of increasing dividends and thus helping to maintain (and potentially improve) my buying power. Fortunately, I think there are a number of stocks in the FTSE 100 that tick this box.

Consistent hiker

It may lack the excitement of your average, unprofitable tech stock, but Bunzl (LSE: BNZL) keeps raising its dividends year after year. Analysts expect the international distributor to return 56.1p to holders for FY21 — up around 3.7% from FY20. This would give a yield of 2.2% at the current share price.

Now, that’s admittedly a lot lower than some firms in the FTSE 100. However, my objective here is not to look for the largest yield, especially if it’s not moving higher. A big but stagnant dividend suggests a company is treading water. More often than not, this payout is eventually cut, or wiped completely.

By contrast, a consistently rising payout tends to be indicative of a well-managed, healthy business. When added to capital gains, this potentially makes Bunzl a better bet for reducing inflation risk.

One potential drawback however, is the relatively pedestrian performance of its share price. BNZL has climbed only 5% in value over the last 12 months. That’s not necessarily a deal-breaker, but it does make maintaining its dividend growth record vitally important.

Chunky dividends

A second FTSE 100 stock I’d be tempted to add to a passive income portfolio is insurance giant Legal & General (LSE: LGEN). Bar the odd exception (e.g. the anomaly that was 2020), L&G also has an excellent record of hiking its dividend.

Analysts are predicting the £17bn-cap will pay investors 18.4p per share in FY21. That’s a 4.6% increase from the previous year. It also gives a monster yield of 6.5% at today’s share price.

This is not to say that everything will be plain sailing. LGEN’s outlook is very much tied to the health of the wider economy. Back in March 2020, for example, the stock pretty much halved in value. This serves as a reminder that investing in even the most established FTSE 100 companies involves risk. 

Then again, it might be said that Legal’s price tag already gives investors a decent margin of safety. Right now, I can pick up the shares for a little less than nine times forecast earnings.

FTSE 100 core holding

A final top-tier company with a history of rewarding income seekers is BAE Systems (LSE: BA). The defence giant is in line to increase its total dividend by 3.6% in FY21, giving a yield of 4.2%.

As things stand, that won’t be enough to keep up with inflation on its own. However, it still looks hugely attractive when you’ve got Cash ISAs returning roughly one-tenth of this amount (and thus doing very little to stop the value of any deposit being eroded).

One thing all dividend hunters must accept, of course, is that increasing payouts can’t be assumed. Given that defence spending can be rather lumpy, that’s particularly worth remembering with BAE. 

Still, I’d say this is already accounted for in the valuation. Despite its share price rising 30% in the last year, BAE stock currently trades on just under 13 times predicted earnings.

The post 3 FTSE 100 dividend hikers to buy as inflation bites appeared first on The Motley Fool UK.

More reading

• Could £20,000 invested in these 5 dividend shares produce £14,760 of passive income over the next 10 years?
• Buying £20k of Legal & General shares could give me a £1,714 income this year!
• Up 325% in 5 years! But are BAE System shares still a no-brainer buy?
• £10,000 invested in BAE shares at the beginning of 2026 is now worth…
• £5,000 invested in Legal & General shares 5 years ago is now worth…

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Bunzl. 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.

BAE Systems

The recent flurry of activity in the defence sector has turned the spotlight back on juggernaut BAE Systems (LSE: BA). For me, this has (and will continue to be) a great source of dividends. 

The company’s down to return 24.6p per share in FY21. Using last Friday’s closing share price of 571p, that’s a yield of 4.3% — higher than that generated by the FTSE 100. What’s more, this income stream can be bought at a good price. Right now, BAE shares are changing hands for 12 times earnings. 

Of course, there are some drawbacks to investing here. I sincerely doubt BAE’s share price will ever explode. So, one ‘risk’ (aside from a dip in defence spending) is that I could ultimately make more money buying a stock with faster growth prospects and a more modest payout.  It’s also worth mentioning that dividend hikes, while consistent, aren’t massive, at roughly 2-4% a year.

Bunzl

If I were concerned with dividend growth rather than the size of those dividends, Bunzl (LSE: BNZL) is another company that would easily make my FTSE 100 shortlist. It’s been one of the most reliable top-tier hikers for years.

The reason for this is partly because it works in a defensive sector. Bunzl supplies consumable products such as disposable tableware, hygiene supplies and food packaging around the globe. It’s deadly dull stuff. And that’s what makes it so great, in my opinion.

As mentioned however, one potential drawback is the relatively small yield. A 55.4p per share return this year equates to 2.1%. That’s below what I could get from the FTSE 100 as a whole. So, is it worth taking on single stock risk if I could just buy a tracker and be done with it?

Personally, I think it might be, even if Bunzl trades on almost 19 times earnings. While hardly shooting the lights out, shares have done far better than the FTSE 100 over the very long term. And if dividends were reinvested, I suspect the difference in returns is even more stark. 

DCC

Dublin-based DCC (LSE: DCC) is my third pick of the best stocks to buy for dividend growth. Like BAE and Bunzl, the £6bn-cap sales, marketing and support services firm has a wonderfully-unblemished record of hiking its bi-annual payouts. 

Based on a potential 170p per share return in the current financial year, DCC yields 2.8%. Again, this is low relative to the FTSE 100 (and other constituents). However, the size of hikes in recent years is worth paying attention to.

Double-digit increases were seen in 2017, 2018 and in the last financial year. This is no guide for the future, of course, but it does make DCC stand out. What’s more, the shares still trade on a little less than 14 times earnings. 

Like the other companies however, DCC’s share price performance is unlikely to rival some of the index’s more glitzy members. I’d also need to be aware that this multi-faceted business could be impacted by a slowdown in demand for things like healthcare supplies and oil.  

The post FTSE 100: 3 of the best stocks to buy for dividend growth appeared first on The Motley Fool UK.

More reading

• Up 325% in 5 years! But are BAE System shares still a no-brainer buy?
• £10,000 invested in BAE shares at the beginning of 2026 is now worth…
• Dividends up 36% in 3 years! No wonder BAE Systems is a popular SIPP stock
• Is BAE Systems the FTSE 100’s newest AI stock?
• £5,000 invested in BAE Systems shares a month ago is now worth…

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Bunzl. 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.

I have typically seen Bunzl as one of the best growth shares to buy, but today’s 3.9% yield makes it look like a tempting income stock too. The pandemic interrupted its proud record of dividend growth, but management quickly resumed shareholder payouts.

You won’t find Bunzl’s products or services in the shops, and I suspect many private investors overlook its potential as a result. It sells groceries, food services, safety wear and cleaning products to companies, allowing them to cut costs, free up working capital, and simplify admin.

One of the best shares to buy now?

The Bunzl share price enjoyed an initial lift from the pandemic, because it also supplies ‘healthcare consumables’, including sanitisers, gloves and face shields. Covid-19 related orders totalled around £550m last year.

If vaccines see off Covid, this demand may fade. This is a worry (for Bunzl) since sales of other products and services fell 5%. On the other hand, these may enjoy a revival if lockdowns ease. It seems to win either way. That is another reason why I see this is one of the best shares right now, and would buy despite current uncertainties.

After excluding larger Covid-19 related orders, the group still expects a “moderate decline” in second-half organic revenue growth. 

So why do I still think this is a great to buy now? I think Bunzl’s acquisition-led global growth strategy is a winner. It offers global diversification, strong cash flows and a robust balance sheet. Today’s low entry valuation is too tempting for this long-term fan to ignore.

I’m also a fan of global information services company Experian (LSE: EXPN), it is expensive trading at a thumping 37.2 earnings. I still think it is one of the best shares on the FTSE 100, but would be reluctant to buy today.

This FTSE 100 stock is a bit pricey

The Experian share price has more than doubled over five years. It has been climbing in recent months, after posting a 14% jump in annual profits to $1.08bn, despite Covid. Statutory revenue edged up 4% to $5.37bn.

Banks worldwide rely on Experian’s massive consumer database to make lending decisions, and around 90% renew their contracts each year. It has two large rivals in Equifax and TransUnion, but high barriers to entry will deter others, maintaining pricing power.

Experian could take a hit if the pandemic drags on or property prices crash, and demand for credit falls. While I don’t see that as a major threat, it may not be the best share to buy at at today’s pricey valuation. I would rather pop it on my watch list and buy if it dips.

The post Best shares to buy! This FTSE 100 stock is too cheap to ignore appeared first on The Motley Fool UK.

More reading

• 1 FTSE 100 stock that could benefit from higher inflation
• As the stock market closes in on a correction, where are the buying opportunities?

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

Personally, I won’t be buying airlines such as easyJet or Ryanair. At some point both stocks could fly, and prove among the very best shares to buy for the recovery. But, as countries strengthen their travel bans, I don’t think we’re there yet.

Cineworld also worries me. The James Bond movie is postponed yet again, and streaming services are encroaching into its territory. The cinema chain has the liquidity to survive this year but I’d like to see signs of an economic recovery before taking a chance on it.

I reckon Bunzl is one of the best shares to buy

Distribution and outsourcing group Bunzl (LSE: BNZL) strikes me as one of the best FTSE 100 shares to buy for my portfolio now. It has risen steadily since last year’s crash, boosted by demand for its cleaning, hygiene, and healthcare offerings, including sanitisers, gloves, and face shields.

The pandemic will not last forever, so this trend will eventually reverse. Brokers at Barclays have also warned of a backlash against disposable packaging, and single-use plastics make up about 15% of Bunzl’s sales. However, I would expect management to adapt and keep up with its competitors, if not stay one step ahead.

I rate Bunzl as one of the best shares to buy because it offers my portfolio plenty of diversification, both by region and country. It looks pretty resilient, too, with strong cash flows and a robust balance sheet. The Bunzl share price may look pricey at 18.21 times earnings, but it yields a solid 2.09%. I’ll take that level of income these days.

I’d also target the Barratt share price

The UK property market is nothing if not resilient and I also favour housebuilder Barratt Developments. Management announced earlier this month that it planned to restart dividends after first-half forward sales jumped 14.3% to 13,588 homes. I’m a big fan of dividend stocks, and like to include some on my list of best shares to buy.

The stamp duty holiday was in full swing during this period, and this will have bolstered demand. House sales and price growth may now have peaked and could slow once the tax break ends on 31 March. However, demand for housing in the UK continues to outstrip demand, and today’s record low mortgage rates should underpin sales.

I’m hoping there is an opportunity here, with the Barratt share price trading at just 11.6 times earnings. I am tempted to add this stock to my portfolio today. I am viewing this as a long-term buy and hold investment, to give me more exposure to the housebuilding sector. At today’s valuation I see no point in waiting. Especially since sentiment could recover strongly once the dividend is restored.

I reckon these are two of the best shares to buy today, for my own portfolio, as they should slot in nicely alongside my existing holdings.

The post I reckon these 2 FTSE 100 stocks could be among the best shares to buy today appeared first on The Motley Fool UK.

More reading

• Hesitant over a Stocks and Shares ISA? Here’s a way to deal with scary markets
• 2 superb FTSE 100 stocks to buy before the next bull market, according to experts!
• With prices forecast to soar 66% (or more), consider these 3 value stocks to buy for an ISA in 2026
• FTSE 100 stocks: the biggest winners and losers of Q1 2026
• 1 FTSE 100 stock that could benefit from higher inflation

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.

I have picked out three FTSE 100 dividend stocks whose payouts are covered at least twice by earnings. That is a sign they may be sustainable.

Consumer goods group Reckitt Benckiser Group (LSE: RB) has lived up to its reputation for being a defensive stock. After falling in the initial sell off, its share price bounced back strongly. It now trades an impressive 20% higher than a year ago when we’d never heard of Covid-19.

Three dividend income stocks I’d buy

It’s actually benefited, as this has increased demand for cleaning and pain relief products, boosting its health and hygiene operations. Dettol was a particularly big seller. First-half pre-tax profit rose £100m to £1.4bn, up 7.7%, with net revenue up 10.8% to £6.9bn. Other areas floundered, as the recently-acquired baby formula business stubbornly refuses to grow. 

Reckitt Benckiser doesn’t offer a massive yield, just 1.9%. However, management has been progressive, so you can expect growth in future. Cover currently stands at exactly 2.0, which is comforting. It’s one of my favourite income stocks, and not just for the dividends.

Data and credit-checking specialist Experian (LSE: EXPN) is another FTSE 100 income stock with a solid dividend, covered 2.1 times by earnings. It’s also one of the most spectacularly successful growth stocks on the index, up 176% over five years. The pandemic has done little to slow its progress. Experian is also up 20% measured over the last year.

Experian saw trading grow strongly in July and August. As a result, it has hiked its second-quarter revenue expectations to between 3% and 5%. Its US mortgage arm has done particularly well, as the business shows its “naturally resilient” qualities.

As FTSE 100 dividend stocks go, the yield is relatively low at 1.21%. But that’s partly down to its runaway share price success. Experian is now valued at almost 40 times earnings as a result. This is expensive, but also shows how highly investors rate it. You might prefer to buy if we get another stock market crash, when it may be cheaper for a while.

Aim to hold for the long term

My last well-covered FTSE 100 dividend stock is a long-term favourite of mine, distribution and outsourcing group Bunzl (LSE: BNZL). Again, the yield is relatively low at 2.04%, but cover is super strong at 2.6 times earnings.

After the usual March dip, Bunzl’s comeback has been staggering, with the stock soaring more than 50% over six months. It did scrap its dividend in April, but quickly brought it back as demand for personal protective equipment boosted profits. This should offer some ballast if slowing economic growth hits demand elsewhere in the business.

I reckon these three well-covered FTSE 100 dividend stocks merit a closer look. The businesses have solid long-term prospects and I’d aim to buy and hold them for years after the pandemic has passed.

The post 3 well-covered FTSE 100 dividend stocks that I’d buy and hold forever appeared first on The Motley Fool UK.

More reading

• Are we staring at once-in-a-decade chance to buy cut-price UK stocks?
• 1 FTSE 100 stock that could benefit from higher inflation
• Is this market correction a brilliant buying opportunity for Stocks and Shares ISA investors?
• As the stock market closes in on a correction, where are the buying opportunities?
• 2 ridiculously cheap shares to consider buying now

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

Putting on the style

The £9bn FTSE 100 company also delivered an 11% rise in interim pre-tax profits to £193m, while retail comparable store sales rose 4%. New collections delivered double-digit growth, although this was knocked by a softer performance of replenishment product lines.

This is nonetheless an impressive performance, and investors are rushing to buy into the Burberry share price as a result.

Mainland China led the way with growth in the “mid-teens”, where it has just announced a social retail partnership with tech giant Tencent. Growth was mid-single digit percentage for Asia Pacific as a whole, despite a double-digit drop in Hong Kong. Solid growth in the UK and Europe offset slower growth in the Americas and a dip in the Middle East.

The right balance

Hong Kong notwithstanding, Burberry is in a good place right now, boasting healthy operating margins at 16.3% and a strong return on capital employed, currently 32.7%. It also has a healthy balance sheet, with net cash standing at £670m in September, up slightly from £647m last year, despite returning £129m to shareholders as dividends and £15m via share buybacks.

Today, it announced a 3% hike in the interim dividend to 11.3p. The forward yield is just 2.2%, against an average of 4.53% for the FTSE 100 as a whole, although it’s covered twice by earnings, giving it plenty of scope for future progression.

So would I buy into the Burberry share price today? I’m a little deterred by its pricey valuation of 23.2 times forward earnings. On the other hand, today’s results would have been even better without the “considerable disruption” in Hong Kong, and the outlook looks solid. I’d label it a buy.

Macro misery

Distribution and outsourcing group Bunzl (LSE: BNZL) has long been a FTSE 100 favourite of mine, but the past year has been a disappointment, with the share price falling 13%. 

Last month’s market update reported 4% growth in Q3 revenue, but underlying revenues fell 1%, due to previously-announced lower sales to a large grocery customer in North America. The group reaffirmed full-year expectations against “continued mixed macroeconomic and market conditions” in its main countries and sectors.

Bunzl nonetheless remains an impressive long-term income and growth play, delivering an average total return of 13.8% a year over the past decade, with 26 consecutive years of dividend hikes. It has grown through acquisition, and has already spent another £100m this year, with further takeover discussions ongoing.

Contrarian buy

As an international business-to-business group, the Bunzl share price is inevitably vulnerable to a slowdown in the global economy. But it also has plenty of resilience, as well as high cash conversion and solid dividend growth. The forecast yield is 2.5%, covered 2.5 times, lower than the FTSE 100 average but with a great track record of growth.

A forward valuation of 16.3 times earnings is relatively low for this £6.87bn group. So instead of being deterred by recent weakness, you might view this as an opportunity to snap up a strong long-term buy and hold at a moment of weakness.

The post I’d buy the soaring Burberry share price and this FTSE 100 dividend stock today appeared first on The Motley Fool UK.

More reading

• 1 FTSE 100 stock that could benefit from higher inflation
• I think this undervalued penny stock has serious potential to outperform
• As the stock market closes in on a correction, where are the buying opportunities?

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

One of them is Bunzl (LSE: BNZL), a one-of-a-kind business. It operates in the relatively dull industry of outsourcing, but the company has been able to excite shareholders with fantastic returns. Over the past decade, the stock has returned 13.8% per annum, and the group has increased its dividend payouts to investors for 26 consecutive years.

Growth through acquisitions 

Bunzl’s growth has come from both organic expansion and bolt-on acquisitions. The company claims to have made 157 acquisitions since 2004, spending on average £222m a year and adding average annualised revenue of £278m. 

As long as the company continues to make sensible acquisitions at attractive prices, I see no reason why this growth trend cannot continue.

Now looks to be a great time to buy into this growth story. The stock is down around 20% since April when management warned revenue growth was not living up to expectations due to challenging macroeconomic and market conditions.

Following the decline, shares in Bunzl have fallen to a forward P/E of 15.9, substantially below the five-year average of 20. There’s also a dividend yield of 2.6% on offer for income seekers.

And if the stock returns 13.8% per annum for the next 10 years, I calculate it could turn a £10,000 investment into nearly £40,000. At this rate of return, an investment of £50,000 could grow to be worth just over £1m in 22 years. 

Competitive advantage

Another FTSE 100 dividend growth stock I believe could help you make a million is Coca-Cola bottler Coca Cola HBC (LSE: CCH). 

This company’s primary competitive advantage is its exclusive licence to bottle Coca-Cola in many European countries, as well as other products. The unique manufacturing agreement has helped the firm grow earnings at a rate of nearly 15% per annum for the past six years. This expansion has helped support dividend growth of 10% per annum since 2013. 

It looks as if this trend is set to continue with City analysts predicting earnings growth of 18% over the next two years. According to a trading update published today, the firm is on track to hit these growth targets despite adverse weather conditions across Europe. 

As well as its core European market, Coca Cola HBC is also expanding into emerging markets. The group recently acquired Bambi, the leading confectionery brand in Serbia, which added 0.8% to revenue growth in the third quarter of 2019. 

Impressive returns

As Coca Cola HBC’s earnings and revenues have ballooned over the past few years, the stock price has also surged higher, rewarding investors who bought in at the company’s IPO back in 2013. 

Over the past five years, including dividends, the stock has produced a total annual return of 15%, in line with earnings per share. If earnings continue to expand at a double-digit rate, I think there’s a good chance this trend will continue. It would take 20 years to turn a £50,000 investment into £1m at an average annual total return of 15%.

The stock is currently trading at a forward P/E of 19.5, slightly below its five-year average of 22.5, and it also supports a dividend yield of 2.5%.

The post Forget the Cash ISA! I’d buy these FTSE 100 dividend growth stocks to make a million appeared first on The Motley Fool UK.

More reading

• Here’s how a £20k ISA could earn you a £6,493 income every month!
• With the FTSE 100 down 5%+ investors should remember this legendary quote from Warren Buffett
• 1 FTSE 100 stock that could benefit from higher inflation
• £20k in a Stocks & Shares ISA? Here’s how to target a £3,854 monthly passive income
• As the stock market closes in on a correction, where are the buying opportunities?

Rupert Hargreaves owns no share 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.

Distributing profits

A great example of the type of companies I’m talking about is distributor Bunzl (LSE: BNZL). The firm is a crucial supplier for many companies because it distributes things like cleaning products and paper plates for the catering industry. These are hardly the most exciting products, but they’re essential for businesses to function.

Where Bunzl excels is its size and experience in the sector. Distribution is a very low margin business, and most companies can’t compete with the sector’s biggest players, which includes Bunzl. The firm also has a good track record of completing and integrating bolt-on acquisitions, mostly smaller businesses that would benefit from being absorbed.

With its economies of scale and stream of acquisitions, Bunzl has been able to grow earnings per share at a compound annual rate of 9% over the past six years. City analysts don’t expect the business to slow any time soon either. Earnings growth of 26% is pencilled in for this year, followed by growth of 4% for 2020.

Right now, you can snap up its shares for just 15 times forward earnings, approximately 25% below its five-year average multiple of 20. There’s also a dividend yield of 2.7% on offer for income investors.

Booming growth

Bunzl’s earnings growth is impressive, but it pales in comparison to Mondi’s (LSE: MNDI) reported growth over the past six years.

This packing group has reported average earnings growth of 17% per annum over the past six years. Net profit jumped from €386m in 2013 to €824m for 2018. Unfortunately, City analysts are forecasting a slight decline in earnings over the next two years. Nonetheless, I believe that, over the long term, this company is exceptionally well-positioned to benefit from the rise in online shopping and global trade.

More importantly, Mondi is highly profitable. Its operating profit margin has averaged 12.9% for the past six years, compared to the average profit margin of companies traded on the London market of 8%.

Management has been investing some of the company’s profits back into the business to drive growth, but it’s also returning a lot of money to shareholders. The current dividend yield stands at 4.2%, and the dividend payout is covered 2.2x by earnings per share.

Today, you can snap up shares in this business for just 11 times forward earnings, a steal considering Mondi’s fat profit margins and its current dividend yield. Also, the stock has historically traded for around 15 times forward earnings. That implies there could be an upside of as much as 36% from the current price if the market decides to re-rate the stock.

The post I think these FTSE 100 dividend stocks can protect your portfolio from Brexit appeared first on The Motley Fool UK.

More reading

• 1 FTSE 100 stock that could benefit from higher inflation
• As the stock market closes in on a correction, where are the buying opportunities?

Rupert Hargreaves owns no share 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.

I think one UK business that ticks all his boxes is outsourcing group Bunzl (LSE: BNZL).

Bigger is better

Bunzl is not a particularly unique business, but its size gives it a robust competitive advantage over the rest of the outsourcing industry. Outsourcing tends to be a relatively low-margin business because the market is so competitive. However, Bunzl’s scale and operating efficiencies mean it commands industry-leading profit margins.

For 2018, the company reported an operating profit margin of 5.3%, more than triple the industry average. Its return on capital employed (ROCE) — a measure of profitability for every £1 invested in a business — was 13.2% for 2018, compared to the market average of 3.7%.

These numbers tell us Bunzl is a highly profitable business with a robust competitive advantage, two of the hallmarks Buffett usually looks for when analysing any enterprise.

The group also has a good track record of creating value for shareholders. For the past decade, management has been successfully rolling cash generated from operations back into the business, growing sales and profits. Net profit has grown at a compound annual rate of 9.6% over the past six years. Book value per share has grown at 12.3% over the same time. The dividend has also grown in line with profitability, rising at a compound annual rate at 9% since 2013.

All of the above leads me to conclude Buffett might be interested in buying Bunzl today.

One of a kind

Another FTSE 100 stock that I think he might be interested in is Spirax-Sarco Engineering (LSE: SPX). This company reminds me of a recent Buffett acquisition, Precision Castparts. What he likes about the latter is its strong reputation for quality with customers. Spirax has earned a similar reputation over the past six decades, and this shows in the firm’s profitability metrics.

Once again, industrial engineering tends to be a low margin business, but Spirax’s operating profit margin of 25% last year is testament to the group’s reputation. Customers are willing to pay more for quality. ROCE hit 23% last year.

Unfortunately, the market is well aware of Spirax’s profitability and, as a result, the stock isn’t cheap. It’s currently dealing at a forward P/E 28.

However, Buffett has shown he’s willing to pay up for quality in the past. He paid around 20 times earnings for Precision Castparts, which suggests to me a P/E of 28 might not be too much of a stretch for such a profitable business with its established reputation.

A dividend yield of 1.4% only adds to the attraction, in my opinion, especially because the distribution has increased by nearly 100% over the past six years.

The post 2 FTSE 100 stocks I think Warren Buffett would buy appeared first on The Motley Fool UK.

More reading

• 1 FTSE 100 stock that could benefit from higher inflation
• As the stock market closes in on a correction, where are the buying opportunities?
• If there’s a stock market crash this week, will you be ready?

Rupert Hargreaves owns no share 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.