Cigarette star Imperial Brands (LSE: IMB) has remained the gift that keeps on giving for dividend chasers in spite of declining cigarette demand.
The tobacco star has raised payouts at a compound annual growth rate of 8.2% during the past five years alone. And while legislative measures like the introduction of plain packaging may be gathering pace, and a rising black market bites the sector’s revenues still further, I reckon Imperial has what it takes to overcome these problems and keep dividends rising.
The FTSE 100 (INDEXFTSE: UKX) firm’s prestigious ‘Growth Brands’ continue to grab market share, enabling Imperial’s top line to keep on swelling. Indeed, the likes of West and Davidoff enjoyed volume and revenue growth of 4.7% and 12.5% respectively during the first half of the fiscal year. And I expect huge investment in these labels to keep driving demand.
This view is shared by the City, and further earnings growth is expected to push Imperial Brands’ dividend from 141p per share in 2015 to 154.7p and 170.8p in 2016 and 2017 respectively. These projections yield a handsome 3.8% and 4.2%.
Shooting star
Like Imperial Brands, BAE Systems’ (LSE: BA) dominance of a classically-defensive sector makes it a favourite for those seeking strong dividend expansion year after year.
Despite the impact of crimped defence budgets and consequently-lumpy contract timings on earnings, BAE Systems has kept on raising the dividend in recent times. And why wouldn’t it? After all, the US and UK militaries’ need for cutting-edge hardware is unlikely to enter terminal decline any time soon.
If anything, the steady rise of international terrorism, combined with fears over Chinese, Russian and North Korean foreign policy, provides plenty of incentive for the West to keep investing in their defensive capabilities. And BAE Systems’ position as a critical supplier to Washington and Whitehall puts it in the box seat to service this demand.
I therefore expect the London business to make good on estimated dividends of 21.2p per share this year — up from 20.9p in 2015 — and 21.8p in 2017. These forecasts yield a Footsie-beating 3.8% and 3.9%.
Mobile mammoth
Helped by abundant cash flows, telecoms leviathan Vodafone (LSE: VOD) has also overcome extreme earnings choppiness in recent times to satisfy the needs to income chasers and keep growing the dividend.
And I believe the payout picture is likely to become even sunnier at the mobile operator. Strength in Germany, Spain and Italy are driving the recovery at its European arm, while exploding demand for data services is propelling revenues across Asia, Africa and the Middle East — organic service revenues in these emerging markets swelled 7.7% during April-June.
With hefty capex bills also unravelling, the City has pencilled-in dividends of 12p for both fiscal 2017 and 2018, up from 11.45p per share in 2016. Vodafone subsequently sports a stunning 5.3% yield for this period. And I expect payouts to march higher again beyond next year as the balance sheet strengthens.
