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How do these FTSE 100 stocks keep paying brilliant dividends?


How do these FTSE 100 stocks keep paying brilliant dividends?

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The FTSE 100 is home to a huge range of heroic dividend stocks. We’re talking high-yielders with strong records of delivering large, market-beating payout, and shares with consistent dividend growth that help investors keep up with (or even beat) inflation.

Here I want to talk about three specifically, and what makes them such formidable passive income providers. The names in question are BAE Systems (LSE:BA.), Standard Life (LSE:SDLF), and Seven Trent (LSE:SVT).

Let’s take a look.

Dividend quality

Each of these firms enjoys strengths that make them perfect dividend powerhouses. With BAE Systems, these factors include:

  • A focus on defence, where long-term demand remains stable.
  • Tier 1 supplier status with huge defence spenders (including the US and UK).
  • Huge barriers to entry, which limits competitive threats.
  • A diverse product range, protecting profits from slowdown in one or two areas.
  • Growing geopolitical uncertainty, which is driving global defence budgets.

Standard Life has its own distinct set of advantages, such as:

  • Capital-light operations and a focus on acquiring ‘closed’ life insurance and pension policies.
  • Predicable cash generation from in-force policies and investment returns.
  • Asset portfolios that are tightly hedged against interest rate moves.
  • Robust capital reserves (its Solvency II ratio today is 176%)
  • Strong growth in the retirement and savings markets.

Great records

Severn Trent, meanwhile, benefits from:

  • Operating in an ultra-defensive industry (water supply).
  • A monopoly in the Midlands region of the UK, eliminating competitive dangers.
  • Multi-year regulatory periods that provide long-term earnings visibility.
  • A strong record of operational efficiency, limiting costs.
  • A growing asset base that leads to increased dividends.

So how have these qualities translated into dividends down the years? Let’s take a look.

Dividend shareYears of unbroken dividend growth10-year average dividend yield
BAE Systems223.7%
Standard Life107.5%
Severn Trent94.2%

Over the past decade, dividend yields have beaten — or been at the upper end of — the FTSE 100 average of 3%-4%. Standard Life’s yield has delivered a yield roughly double that level.

These FTSE stocks have also navigated major shocks to keep growing their dividends. During the Covid pandemic, for instance, they continued raising payouts, a period when roughly half of Footsie companies experienced some disruption.

Can they keep delivering?

But here’s the thing. Past dividend performance isn’t always a reliable guide to future. With BAE Systems, earnings could suffer if defence-related supply chain issues worsen, impacting dividend growth.

Rising competition in pensions and annuities might hit Standard Life’s future payouts. And as for Severn Trent? The company’s profits could take a hit if interest rates rise and borrowing costs shoot up.

However, no share is without risk. And on balance, I fully expect these FTSE 100 stocks to keep offering excellent dividend yields and payout growth. Their resilient business models and strong cash generation make them excellent income shares to consider.


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How do these FTSE 100 stocks keep paying brilliant dividends?

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