When choosing income stocks simply selecting one with the highest yield isn’t enough, the payout also has to be sustainable. The following three companies aren’t the juiciest yielders on the FTSE 100, but the dividends should keep flowing year after year.
Imperial stretch
Tobacco giant Imperial Brands Group (LSE: IMB) currently yields a steady 3.53%, slightly below the FTSE 100 average of 3.71%. That’s actually more impressive than it seems given that the stock has also delivered punchy share price growth of 30% over the past year, and a higher share price inevitably squeezes the yield. Over five years the stock is up 101%, which shows that management has worked hard to ensure the yield keeps up.
And so it has: dividends at Imperial Brands have increased at an annual compound rate of 12% since 2008, with the company consistently increasing its dividend per share by over 10% each year, including the last one. That really does make it one of the most solid yields on the index today, in true tobacco company style. Inevitably, it isn’t cheap, trading at 18.99 times earnings but that’s a minor concern given its satisfying income stream.
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National treasure
Transmissions giant National Grid (LSE: NG) has also had an impressive 12 months, its share price up 27%. The stock nonetheless yields a solid 4.03% although future growth is likely to be less electric than at Imperial Brands. Last year management raised the dividend by just 1.1% to 43.34p. It has committed to raise it by at least RPI for the foreseeable future: in July that figure stood at 1.9%, notably higher than the consumer price index figure of 0.6%.
National Grid remains my favourite utility play. Anybody who’s dissatisfied with their bank’s savings rate (just about everybody) should consider this as their first step into higher-yielding stocks: the share price may be volatile but the underlying business is as secure as it gets, given its duty to run essential gas and electricity structure across the UK and US. The price is slightly high at 16.93 times earnings and regulators may come under political pressure to tighten margins every time its posts a strong set of profits, but these are minor quibbles.
United stands
It’s been a good year for safe haven stocks with water business United Utilities Group (LSE: UU) gushing 18% share price growth in that time. Yet the yield remains a far from watery 3.92%, supplying much-needed relief to parched investors. The company’s management did have designs on ‘electrifying’ the business by purchasing regional power utilities but has sensibly backtracked after running up debts for little reward. Now it’s sticking to what it knows best, promising investors RPI-linked dividend growth for as long as human beings need water.
United Utilities isn’t the raciest investment around, earnings per share are expected to fall 5% in the year to March 2017, and creep up by 3% the year afterwards. At 20.48 times earnings it isn’t even cheap. But the yield looks solid and is likely to grow, which is more than can be said about today’s savings rates.
