10 dividend shares for income hunters wanting payout growth

by Ben Hobson from Stockopedia |

There are lots ways to combine decent expected dividend growth rates and above-average forecast yields.

News this week that insurance group Hastings (LSE:HSTG) is set to cut its dividend this year because of higher claims costs is a reminder of just how precarious some dividend payouts are.

For dividend investors, predictable income streams can be vital, so it pays to consider some of the signs that a payout will remain intact. 

In an effort to avoid dividend cuts, most income strategies put protective measures in place to avoid the worst disappointments. Some strategies deliberately avoid very high yields, which are often a tell-tale sign that a cut may be on the cards.

Others stack the odds in their favour by only buying reliable blue-chip stocks. Or they look for financial strength, balance sheet health and well-managed dividend policies.

Another clue that can help in the search for reliable dividends is to look for companies with a history of uninterrupted dividend growth. Shares that excel against this measure are known as Dividend Achievers.

By consistently raising their payouts year-in and year-out, Dividend Achievers make a big statement about their confidence in the future. It’s something that Peter Lynch is particularly fond of. In his book, Beating the Street, the one-time star fund manager at Fidelity Investments wrote: 

“The dividend is such an important factor in the success of many stocks that you could hardly go wrong by making an entire portfolio of companies that have raised their dividends for 10 to 20 years in a row.”

Long-term dividend growth track records (well beyond just five years) – so-called dividend aristocrats - are popular in territories like the United States, where there are larger numbers of companies to choose from. In the UK, these types of stocks are harder to find in numbers - but impressive track records are still out there.

This is important now because the latest dividend payout statistics suggest that dividend growth could be slowing in the UK. Last year’s Q3 payout statistics from Link Asset Services showed that underlying growth had ground to a halt. And much of the growth for the year was down to a combination of weaker sterling and a handful of exceptional one-off payouts. 

A Dividend Achievers screen modelled by Stockopedia has seen a very sharp rise since last December, suggesting that the market is, among other things, rewarding stocks with a dividend growth record. 

Source: Stockopedia

The screen looks for companies with a dividend growth streak of at least four years, as well as earnings growth of at least 10% compounded over five years. Here are some of the companies that currently pass those rules:

Name Mkt Cap Forecast Yield % Dividend Gwth Streak DPS Gwth % EPS 5y growth rate %
Taylor Wimpey (LSE:TW.) 7,036 8.6 7 22.4 26.9
Oxford Metrics (LSE:OMG) 140.7 2 8 20 33.1
Bioventix (LSE:BVXP) 208.8 2.3 8 19.7 17.6
Barratt Developments (LSE:BDEV) 8,215 5.8 6 9.81 19
Redrow (LSE:RDW) 2,772 5 6 9.01 26.7
MJ Gleeson (LSE:GLE) 525.7 3.9 6 7.81 30.8
Concurrent Technologies (LSE:CNC) 58.5 3.2 9 4.35 20.4
The Property Franchise (LSE:TPFG) 55 4.1 5 2.38 22.1
Jersey Electricity (LSE:JEL) 139.4 3.8 9 2.35 21.8
3i (LSE:III) 10,913 3.4 4 1.35 18

Blending consistent dividend growth and medium term, double-digit earnings growth picks up a broad range of companies. They range from large cap house builders like Taylor Wimpey (LSE:TW.), Barratt Developments (LSE:BDEV) and Redrow (LSE:RDW) to fast-growth firms like Oxford Metrics (LSE:OMG), Bioventix (LSE:BVXP), Concurrent Technologies (LSE:CNC) and The Property Franchise (LSE:TPFG).

Dividend cuts can be a painful experience for income investors, so it pays to consider which companies are well-positioned to keep up the pace. Looking for firms with a track record of dividend growth is one way of doing it. 

General uncertainty in the economy is perhaps the biggest risk to dividend growth across the market this year. But for individual investors looking for small baskets of stocks to explore, there certainly seem to be options available to combine decent expected dividend growth rates and above-average forecast yields.

Stockopedia helps individual investors beat the stock market by providing stock rankings, screening tools, portfolio analytics and premium editorial. The service takes an evidence-based approach to investing, and uses the principles of factor investing and behavioural finance to help investors make better decisions.

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These investment articles are simply for generating ideas. If you are thinking of investing they should only ever be a starting point for your own in-depth research.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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