A FTSE 100 dividend king that I’d buy today and hold forever

Looking for bona fide dividend beauties? Royston Wild discusses a FTSE 100 (INDEXFTSE: UKX) income share he reckons is worth your attention today.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

It’s true that there’s plenty of blue-chips with bigger dividend yields than Spirax-Sarco Engineering (LSE: SPX).

In fact, if I was to tell you that this FTSE 100 stock yields just 1.4% for 2019, a figure that sits well below the broader forward average of 4.5% for Britain’s blue-chip index, you may well think that I’m punchy to consider this a terrific income share. Why pick this over Taylor Wimpey and its 10%-plus yield, for example, HSBC and its 6% yield, or Aviva and its yield of 7.5%?

Rip-roaring trading results

These are all great stocks for income seekers but this doesn’t mean that Spirax-Sarco can’t also be considered a delicious dividend champion. Why? Well, the rate at which the engineer has lifted ordinary dividends in recent times (up 55% over the past half a decade, in fact) and has dished out special payouts in the past five years too, that’s why.

And judging by its most recent financials, this business, which designs technologies to control and harness the power of steam and industrial fluids, would appear to be in great shape to keep supercharging dividends for some time yet. Revenues tore 15% higher in 2018 to £1.15bn while adjusted pre-tax profit galloped to £254.6m, up 11% year-on-year.

And why am I confident that profits can keep on climbing? Well, the strong sales growth that Spirax-Sarco is witnessing across all of its divisions, allowing turnover at group level to continue outperforming the broader market. On top of this, the Cheltenham company’s commitment to acquisitions should also help the bottom line to keep expanding in spite of tougher times, like that of heating and temperature product specialist Thermocoax which was sealed last week.

Breakneck pace

City analysts are expecting profits growth to cool a little in the medium term in reflection of slowing industrial markets, and bottom-line rises of 4% and 7% are forecast for 2019 and 2020 respectively. And this means that annual dividend growth is expected to cool a little too.

That’s not to say that payout increases are set to disappoint, though. Indeed, last year’s 100p per share reward is still expected to jump to 108p in the current period, yielding that aforementioned 1.4%. And in 2020, a 117p dividend is estimated, a figure that nudges the yield to 1.5%.

Safe as houses

As I said, these yields might not be the biggest, but on the other side of the coin, dividend projections at the engineer look a lot stronger than many of those on the Footsie on account of its bright earnings outlook and excellent cash generation (which means that net debt-to-EBITDA currently stands at just 0.8 times).

What’s more, news that projected dividends for this year and next are covered 2.4 times by projected profits, comfortably above the widely-regarded security benchmark of 2 times, should soothe the nerves of even the most cautious share pickers.

For long-term investors happy to sacrifice monster yields today for the prospect of strong and sustained dividend hikes many years into the future, I reckon this blue-chip may be one of the best.


Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild owns shares of Taylor Wimpey. The Motley Fool UK has recommended HSBC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Thoughtful man using his phone while riding on a train and looking through the window
Investing Articles

This FTSE 250 trust is easily beating the global index in 2025. Time to buy?

One global FTSE 250 investment trust has been turning things round recently, with a handy bit of outperformance. Ben McPoland…

Read more »

Bournemouth at night with a fireworks display from the pier
Investing Articles

Is the fizz about to go from the Coca-Cola HBC share price?

The world’s most popular drink’s hitting the headlines again. Our writer considers whether there are any implications for the Coca-Cola…

Read more »

Portrait of a boy with the map of the world painted on his face.
Investing Articles

3 top FTSE 250 investment trusts to consider buying today 

This trio of high-quality trusts from the FTSE 250 index would give a Stocks and Shares ISA portfolio a truly…

Read more »

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

Another strong set of results from this FTSE 100 telecoms company. Time to buy?

The FTSE 100’s Airtel Africa released its first-quarter earnings yesterday (24 July). Our writer’s been taking a closer look at…

Read more »

A quiet morning and an empty Victoria Street in Edinburgh's historic Old Town.
Investing Articles

The Rightmove share price is too hot… a pullback could be coming

The Rightmove share price has pushed above the consensus share price target. And while analysts are often wrong, this could…

Read more »

Branch of NatWest bank
Investing Articles

With the bank’s income, margin and earnings higher, the NatWest share price continues where it left off!

Post-pandemic the NatWest share price has been the third-best performer on the FTSE 100. Our writer looks at the bank’s…

Read more »

piggy bank, searching with binoculars
Growth Shares

Up 13% in a day, this FTSE 250 stock may be primed to rocket even higher

Jon Smith reviews a FTSE 250 company that's suddenly on everyone's minds, and outlines why the party's just getting started.

Read more »

Engineer Project Manager Talks With Scientist working on Computer
Investing Articles

After falling 16% in a day, this stock’s on my list of shares to buy in August

Despite the FTSE 100 and the S&P 500 hitting record highs, Stephen Wright’s list of shares to buy in August…

Read more »