Decade-long run ends for 14 divi champs – but last stocks standing can power ahead
The pandemic and economic downturn have taken their toll on the FTSE 100’s elite list of serial dividend raisers.
Just 14 firms now boast a record of at least 10 consecutive increases in their annual dividend, down from 25 at the start of the year, according to A J Bell, a stock broker.
The three newcomers are: Pennon, Legal & General and Intermediate Capital Group, after all upped their payouts this year.
Firms that were forced to shut or limit their business operations when economies locked down in March were the hardest hit. Many chose to protect their own finances over increasing payouts to shareholders.
The 14 casualties included retailer Associated British Foods, which owns Primark. JD Sports also cut its dividend, as did InterContinental Hotels, property website Rightmove, catering company Compass Group and fashion house Burberry.
The demise of the dividend growth records demonstrated how difficult it had been to increase, or even maintain, shareholder payments for a decade or more, noted Russ Mould of A J Bell.
Chris Rush of Iboss, a wealth manager, said pressure from governments and consumers contributed to payouts being slashed.
A J Bell’s figures showed dividends for the FTSE 100 would fall from £91bn to £62bn in 2020. The index would yield 3.6pc versus a 4.7pc expected yield at the start of the year.
However, it is not all doom and gloom. The 14 companies that have held on to their record or entered the exclusive club have made excellent investments over the past decade and this could continue.
“Any firm that achieves a streak of 10 or more years increasing its dividend must be doing something right,” Mr Mould said.
“Buying the FTSE 100’s 14 remaining serial dividend growers would have brought bumper returns to portfolios.”
The average share price gain from the 10-year dividend growers is 480pc and the average total return, which includes dividend payments, is 620pc. Both easily beat the FTSE 100, at 20pc and 75pc respectively.
“If the records can be maintained then there could be rewards for patient shareholders,” he added.
However, it is more complicated than simply picking past dividend winners. Only four of the 14 – BAT, Diageo, Legal & General and Sage – were in the FTSE 100 a decade ago.
Investors would therefore need to burrow through the FTSE 250 to look for the next generation of dividend growth champions.
British stocks are no longer a haven for income seekers. In 2009, £1 in every £10 paid in dividends globally came from UK companies.
However, last year it fell to £1 in £13 as firms in other areas such as Asia and America upped their returns to owners.
This year’s cuts are expected to further reduce Britain’s share of the global payout market, with domestic businesses disproportionally affected. Oil, mining companies and banks are important income sectors in the FTSE 100 but have all borne the brunt of the cuts.
