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 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 (in 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 BHP Billiton (BHP), Croda International (CRDA -1.71%), National Grid (NG 1.29%), Capita (CPI 1.66%) and AstraZeneca (AZN 0.16%). 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):
| Share | Billiton | Croda | National Grid | Capita | AstraZeneca |
|---|---|---|---|---|---|
| Dividend cover | 4 | 4 | 3 | 4 | 4 |
| Net cash or debt | 4 | 4 | 2 | 2 | 4 |
| Cash flow | 3 | 5 | 4 | 2 | 1 |
| Outlook and recent trading | 4 | 4 | 5 | 5 | 2 |
| Total (out of 20) | 15 | 17 | 14 | 13 | 11 |
Investors seeking dividend growers with sector diversification can find a good spread in this collection.
Natural resources
Against a background of moderating growth in China's economy and weakness in Europe, BHP Billiton has been focusing on ways of controlling escalating costs by managing output from its assets. The company reckons much of the pain could be behind it now and expects more stable, if somewhat flatter, macroeconomic conditions going forward. That, and its successful commodity diversification strategy appears to make the directors cautiously optimistic about the future and that makes me cautiously optimistic about the prospects for the dividend.
Chemicals
Croda's focus on high value niche markets around the world has been paying off if its record of trading is anything to go by. The firm produces specialty chemicals for many industries in around 34 countries, with around 43% of revenues coming from Europe, 35% from the Americas, 17% from Asia, and 5% from the rest of the world. Despite lumpy recent European trading, other markets are growing and that encourages me to believe that the dividend will keep on growing.
Power distribution
Despite operating in a highly regulated environment, National Grid's monopoly position in the U.K.'s energy markets has always attracted income seekers to the shares. The firm runs Britain's countrywide high-voltage electricity transmission network and the high-pressure gas distribution network. In the U.S., where its activities are also strictly regulated, the company has a diversified electricity generation and distribution business serving the Northeast. Last year, around 39% of operating profits came from U.K. electricity transmission, 34% from the US, 22% from U.K. gas distribution, and 5% from other operations.
Outsourced services
Capita is one of the U.K.'s leading outsourcing specialists. Established in 1984, the company counts both private and public sector businesses among its customers, and many know it for its involvement in London's congestion charging scheme. In an update released on Nov. 13, the directors were upbeat citing a record 1.7 billion pounds in contract wins to that point during 2012. Capita provides non-core services like administration, ICT, HR and payroll, strategic development, and business process engineering, and is mainly active in the U.K. Last year, 20% of revenue came from local government, 15% from health, 13% from education, 10% from central government, 8% from insurance, 7% from life and pensions, 4% from financial services, 3% from transport, and 20% from other businesses in the private sector. Forward demand seems robust, and that encourages optimism for the dividend.
Pharmaceuticals
Nearly all of Astra's trading geographies have been affected by falling sales due to several of its best-selling brands coming off patent. That seems to be showing up in weaker cash flow figures and a 19% revenue decline during 2012. However, Astra's problems run deeper than mere patent-expiry issues, according to the directors. There are headwinds for the industry, such as governments' and the private sector's ability to pay; increased government intervention on pricing; health care and R&D costs rising faster than GDP, a trend exacerbated by ongoing global economic turmoil; and the decline in probability of success for bringing a product from pre-clinical testing to regulatory approval and launch. Astra's fairly static share price has allowed the rising dividend to show a thick yield. Are the shares a bargain or will they become cheaper yet? Either way, I'm cautious on the dividend's ability to remain an out-performer.
Further ideas for dividend growth
Those five shares are among the several dividend out performers currently trading on the London stock exchange. And there's one man who's as keen as I am to find -- and invest -- in 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."
The free report analyses the 20 billion pound portfolio and FTSE-thrashing history of the high-yield expert. Click here now to discover Woodford's favorite dividend opportunities with good growth potential.
