Shares the pros are backing for solid dividend growth

Looking for dividend growth is a crucial but under-rated part of investment decision-making, and can help deliver a welcome blend of stability and growth to a portfolio. However, you won’t necessarily find it from broad market exposure – you need to go looking for it.

• Our Services: SIPP Account | Stocks & Shares ISA | See all Investment Accounts

Every income investor is running to stand still. Over the past decade, any income would have had to grow over 40% just to retain its spending power. But a good dividend growth fund can outpace inflation and then some. The long-term effects are powerful. A fund or trust paying an income of 2%, that grows at 10% a year, would deliver £20 for a £1,000 investment in year one, but by year 20, that could be up to £150 on that same investment.

You’re not going to get a lot of dividend growth from a global tracker. Many of the world’s largest companies – Amazon.com Inc (NASDAQ:AMZN), Meta Platforms Inc Class A (NASDAQ:META) –  either do not pay dividends or their dividends are vanishingly small – with yields of just 0.4% for Apple Inc (NASDAQ:AAPL), or 0.1% for NVIDIA Corp (NASDAQ:NVDA). That said, there is plenty of dividend growth about. The most recent Capital Group Dividend Watch Survey showed that the average dividend growth across global equity markets was around 6% in 2025.

High yields

There are notable hotspots. Japan, for example, saw 12.5% dividend growth last year as its corporate governance reforms continued to bear fruit. Emerging markets were also fertile ground, with dividend growth of 7.1%.

Focusing on dividend growth brings a different return profile to a pure dividend strategy. Dividend investors can be condemned to dull, old economy sectors such as oil and gas or utilities but dividend investors have far greater choice.

Tristan Purcell, co-portfolio manager on the Fidelity Global Dividend W Acc (B7GJPN7) fund, points out that one of the most common mistakes in income investing is allocating capital to the highest-yielding companies without giving due consideration to the sustainability of the distribution.

He adds: “Companies often have high dividend yields for a reason and a classic example of that was the mining sector 10 years ago, where 8-10% dividend yields were easy to find, only for those dividends to be later cut in half. We’re looking for companies that generate lots of cash now and can continue to do so.”

• How I turbocharge 9.5% yielding portfolio
• Dividend heroes vs enhanced income: which approach is best?

Isaac Thong, manager of the Aberdeen Asian Income Fund Limited (LSE:AAIF), says that the Asia semiconductor and hardware companies are a good example. These companies are turning AI into physical reality. “The picks and shovels of AI sit in Asia and these companies pay far higher dividends than the technology companies in the US.” The Aberdeen Asian Income Fund has more than 40% in technology.

Cash flow is key

Dividend growth is not a guarantee of a great company, but it shows that a company is confident in its direction and has the cash flow to support it. Thong says that it can impose an important discipline on management teams. It ensures they do not sit with too much cash on their balance sheets, and it can also be a bulwark against making poor investments or value-destructive acquisitions.

Many of the areas that have been strong in 2025 still offer opportunities. Thong says China is still fertile ground, particularly Chinese industrials. Companies operating in areas such as car parts or battery manufacturing are “fast becoming global champions”. He said dividend yields of 6% or higher are not unusual, with growth on top. 

• The most widely held global income shares among fund managers
• The most widely held global growth shares among fund managers

Equally, there are still plenty of opportunities in financials. Matthew Page, co-manager on the Guinness Global Equity Income Y GBP Acc (BVYPNY2) fund highlights non-life insurers like Admiral Group (LSE:ADM) – “car insurance earnings depend on when people crash, not the economy” - and Munich Re Munchener Ruckversicherungs-Gesellschaft AG (XETRA:MUV2). James Harries, manager on the STS Global Income & Growth Trust Ord (LSE:STS), plumps for spread betting group IG Group Holdings (LSE:IGG): “Because of its dominance, it can offer the tightest spreads and lower trading costs, thereby creating a sustainable competitive edge. Its CEO, Breon Corcoran, has refocused the business effectively.”

Simon Moon, fund manager on the Unicorn UK Income B Acc (B9XQFY6) fund, likes specialist financial services groups such as asset managers. “Polar Capital Holdings (LSE:POLR) is a good example: a specialist manager focused on niche, higher-fee strategies in tech, healthcare and financials, where fee income compounds as assets grow and balance sheet risk is minimal.”

Looking beyond the biggest companies

Dividend growth managers are also looking more broadly. Page highlights payroll group Paychex Inc (NASDAQ:PAYX), which provides payroll and human capital management services, mainly for small and medium-sized businesses in the US. He adds: “While business services are not the first place many income investors would traditionally look, it provides essential, mission-critical services, has a high level of recurring revenues and high customer retention. These defensive properties somewhat protect the firm’s ability to pay a dividend over the long run. The shares yield around 4.8% (indicated), the dividend has grown at roughly 12% each year over five years.”

Purcell is an investor in Zara-owner Industria De Diseno Textil SA Share From Split (XMAD:ITX): “It is not a typical hunting ground for income investors. However, the company’s differentiated business model allows it to respond to fashion trends more quickly and therefore mark down less of its stock compared to peers. The Spanish business has a significant runway for growth elsewhere in Europe as well as the US, which should support a growing dividend alongside an attractive current 3.2% dividend yield.” Harries is also not afraid of a consumer-focused stock, backing InterContinental Hotels Group (LSE:IHG).

UK dividend opportunities

Turning to the UK, Simon Murphy, manager on the VT Tyndall Uncons UK Inc GBP A Acc (BYX0D61) fund, sees lots of opportunity in UK stocks in the process of recovery. “These are fundamentally sound businesses that have, for a variety of reasons, fallen on hard times, where we are convinced there is a plan in place to restore the business to good health operationally and financially.”

He gives the example of Burberry Group (LSE:BRBY), which currently pays no dividend at all. Murphy explains: “Having lost its way under previous management, the financials of the firm deteriorated to such an extent that the board cancelled all dividends for the year to March 2025. However, the new management team led by Joshua Schulman are rapidly restoring the company’s fortunes under the ‘Burberry Forward’ plan. Early signs are extremely encouraging.”

He also likes JD Sports Fashion (LSE:JD.). “The current management team are sharpening the operational focus of the business, significantly reducing expansionary plans and focusing more intently on returning still very healthy levels of cash generation back to shareholders.”

• Fund Focus: who survived the latest sell-off?
• How to protect your retirement from a stock market crash

Alan Dobbie, fund manager, Rathbone Income Fund I Acc (B3Q9WG1) fund says UK investors need to be wary of the bigger dividend players, such as Shell (LSE:SHEL), National Grid (LSE:NG.), GSK (LSE:GSK), HSBC Holdings (LSE:HSBA) and Rio Tinto  Ordinary Shares (LSE:RIO), where strong share price growth has seen yields fall, but adds, “many mid-caps and quality stocks now offer an attractive mix of yield, resilience and growth.”

He likes Primary Health Properties (LSE:PHP), the owner of GP surgeries across the UK and Ireland, which has a yield of more than 7%, backed by rental income that is ultimately funded by the UK and Irish governments. “We see scope for long-term growth as healthcare provision continues to shift from hospitals into the community.”

RELX (LSE:REL) is another interesting opportunity, he says: “The shares have come under pressure as investors worry about AI disruption, but we think the market underestimates the value of RELX’s proprietary datasets, deep customer relationships and embedded workflows.” Page at Guinness also back RELX.

Marks & Spencer Group (LSE:MKS) has a low yield but strong dividend growth potential, according to Clive Beagles, fund manager of JOHCM UK Equity Income IP GBP Acc (B8FCHK5). In a recent video interview with interactive investor Beagles said: “[In terms of] dividend cover, they’ve been very miserly so far in terms of distributing their better profitability to shareholders, and they were probably just about to, and then they had their cyber incident, which set them back for nine or 12 months.

“The result being that their dividend cover today is 8x. The average company in the UK, as you know, is about 2x. So, on the face of it, Marks & Spencer’s is a share that only yields, say, 1.5%. But if it moves to a sensible payout ratio or dividend cover of maybe 3x, it could easily be paying a dividend twice as high as the current number, or even three times as high, particularly because we think the earnings have the potential to be meaningfully higher than what they’re reporting today as they continue to grow share in food and improve their margins in their clothing and home business.

“So, that’s a share that I would say, looking out four or five years, is on a very healthy yield and we would expect strong dividend growth over the next few years.” 

• Where we are shopping for UK dividends
• These shares are often expensive, but are now going cheap

Moon adds “niche manufacturers with strong positions in unglamorous markets” to the list. He likes James Halstead (LSE:JHD), which makes commercial flooring sold in over 140 countries, and has raised its dividend for 49 straight years. “Heat treatment services group Bodycote (LSE:BOY) also has an excellent track record, with 30+ years of uninterrupted dividend maintenance and growth.”

A final place for any dividend growth-focused investor to look would be the Association of Investment Companies (AIC)’ “Dividend Heroes” list. These are trusts that have grown their dividends for 20 years or more. They have proved a reliable way to secure a growing income.