5 FTSE 100 Dividend-Raising Stars

LONDON -- In an outcome that's tough on investors, the FTSE 100 has failed to deliver a rising dividend payout over the last few years.

Just look at the iShares FTSE 100 ETF, for example. This is an exchange-traded fund that tracks the benchmark index, and we can see that the aggregate payment from Britain's top 100 companies has yet to regain its pre-recession peak:

Year

2007

2008

2009

2010

2011

Dividend per Share (pence) 19.1 20.2 17.1 16.2 18.1

That's disappointing. But some companies within London's premier index have performed well on dividends despite these austere times, and this series aims to seek them out (you can see all of the companies I've covered so far on this page).

Over the last few weeks, I've looked at Prudential (LSE: PRU.L  ) , Aberdeen Asset Management (LSE: AND.L  ) , Next (LSE: NXT.L  ) , Tesco (LSE: TSCO.L  ) , and Rolls-Royce Holdings  (LSE: RR.L  ) . Let's see how each scored against my dividend growth and valuation criteria (each score in the chart is out of a maximum possible five):

 

Prudential

Aberdeen

Next

Tesco

Rolls-Royce

Dividend cover 4 4 4 4 4
Net cash or debt 4 5 4 3 5
Cash flow 4 5 3 4 4
Outlook and recent trading 4 4 3 3 4
Total (out of 20) 16 18 14 14 17

There is plenty of industry diversification available with this batch of dividend-raising stars.

Insurance
Although not immune to economic cycles, insurance giant Prudential managed to maintain its progressive dividend policy through the recent financial crisis. If investors can live with the firm's esoteric financial reporting, Prudential could be a good dividend bet going forward. The directors see the most opportunity for future growth in South East Asia. If that growth generates free cash, it can only be good news for the dividend.

Asset management
Aberdeen Asset management describes itself as a pure asset-management company, and last year it earned about 94% of its revenue from management fees. Around 44% was from managing equities, 24% from fixed income, 15% from alternative investment strategies, 12% from property, and 5% from the money markets. Although the directors expect slow global growth for years ahead, they seem confident that opportunities to work assets hard for their owners will continue to exist. If that's true, it can only be good news for the dividend, judging by past performance.

Fashion retailing
Business has been brisk for clothing, flowers, gifts, sports gear, and electrical retailer Next. Last year, around 64% of sales were through its retail division, while 32% came through its catalogue and Internet directory division, just more than 2% came from its fledgling international Internet division, and the rest came from other sources. Going forward, the company seems committed to expanding into new store space, as well as driving Internet sales. That growth, if turned into solid flows of free cash, should bolster the prospects for the dividend, despite the cautious outlook.

Grocery and general retailing
Right now, the directors of Britain's largest retailer, Tesco, have firmly refocused on the core U.K. market, and a domestic-investment program is underway. The firm has some catching up to do at home, but I'm with those who think it can achieve that and go on to grow international sales and profits. If the company pulls off that double-whammy, there's potential cheer for those using the current share-price setback to lock in a decent dividend yield as the progressive dividend policy continues.

Integrated power systems
Rolls-Royce's aero engines power both military and civil aircraft, and the firm is a supplier of power-generating turbines to the marine and energy markets. The firm enjoys good business in both the initial equipment supply and the servicing aftermarkets in the industries it serves. In 2011, around 49% of revenue came from civil aerospace, 20% came from defense aerospace, 20% came from the marine market, and 11% came from the energy industry. Right now, the order book stands at about 60 billion pound. Going on past performance, there seems every chance of that potential turnover swelling the cash coffers, which is promising for the continuation of the progressive dividend policy.

Further ideas for dividend growth
These five shares are among the several dividend outperformers currently trading on the London Stock Exchange. And there's one man who's as keen as I am to find them. I suggest you read all about dividend legend Neil Woodford and his best investment ideas today in this free, time-limited report while you have the chance: "8 Top Income Plays Held By Britain's Super Investor."

If you are an ambitious investor hoping to profit from this uncertain economy, I urge you to read "10 Steps To Making A Million In The Market" today -- it could transform your wealth. Click here now to request your free, no-obligation copy. The Motley Fool is helping Britain invest. Better.

Further Motley Fool investment opportunities:

Kevin owns shares in Tesco but not in the other companies mentioned. The Motley Fool owns shares in Tesco. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.


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