LONDON -- Ace City investor Neil Woodford has thrashed the FTSE 100 over the last five-, 10-, and 15-year periods. Hence, I always keep an eye on his holdings for promising investment ideas.
Woodford is very selective in picking shares for his 20 billion pound funds. Fewer than one in five of the U.K.'s top 100 companies earn a place in his market-beating portfolios.
The following three companies are his fastest blue-chip dividend growers of the last four years:
|
Company |
Share Price (pence) |
Average Annual Dividend Growth |
Forecast Dividend Yield |
|---|---|---|---|
|
Reckitt Benckiser |
3,586 |
24% |
3.6% |
|
Wm Morrison Supermarkets |
278 |
23% |
4.3% |
|
British American Tobacco |
3,483 |
20% |
3.9% |
Reckitt Benckiser
The consumer-goods giant, which counts Cillit Bang, Dettol, and Finish among a strong stable of brands, is a top-10 holding in Woodford's funds.
Reckitt's stellar 24% average annual dividend growth includes a one-off boost in 2008, when the company upped its dividend payout ratio to 50% of earnings. Even without that exceptional year, though, average annual growth has been an impressive 16%.
However, despite making good headway in emerging markets, the company has found Europe and North America increasingly challenging in the last three years. A trend of moderating dividend growth -- by 25% in 2009, 15% in 2010, and 9% in 2011 -- has continued with this year's recently announced interim dividend, which was lifted a mere 2%.
Given the tough consumer environment in its major markets -- particularly Europe -- it's hard to see Reckitt's dividend returning to double-digit growth in the near term.
William Morrison
The U.K.'s fourth-largest supermarket sits outside Woodford's top 10 holdings but is the only supermarket he deems worthy. Like Reckitt Benckiser, Morrison's sparkling average dividend growth -- 23% a year -- has been boosted by a favorable policy change to the dividend payout ratio.
After the retirement of famously tight-fisted boss Sir Ken Morrison in 2008, the directors began increasing the dividend payout ratio from a measly 24% with a view to bringing it more in line with the sector average.
The ratio is currently 42% compared with Tesco, at 39%, and J Sainsbury, at 57%. As things stand, Morrison's has committed to a minimum dividend increase of 10% in each of the three years to fiscal year 2014 and has delivered an 11% rise in the first of those.
British American Tobacco
Woodford has a long-standing love affair with tobacco companies. The world's No. 2 tobacconist, British American Tobacco, is a top-five holding in his funds, with a weighting of around 6%. Average annual dividend growth of 20% over the last four years is testament to the resilience of addictive products in a recessionary environment, as well as the increasing wealth and tobacco consumption within emerging markets.
BAT raised its dividend by 11% last year, and this year's recently declared interim was lifted by the same percentage. The company has a policy of paying out 65% of earnings in dividends, so there's not too much scope for boosting dividend growth by increasing the payout ratio further.
However, the current rate of growth is still excellent, and loyal shareholders who have enjoyed years of inflation-busting income won't be complaining.
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