Lately I’ve been trawling the FTSE 100 and the rest of the London stock market for a particular type of stock.
My focus is to hunt out companies that have had a consistent and growing dividend record over the past few years.
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When it comes to dividend-led investments, a high yield alone isn’t enough for me. And that’s because the shareholder payment must have the backing of a healthy and growing business. Otherwise I could end up investing in a company going nowhere.
Businesses tend to grow or shrink
And without the potential for a business to grow, I reckon there’s an increased chance that it may shrink. And that could lead to dividend cuts and a falling share price down the road — a potential double whammy that could hurt my portfolio.
So, I’m wary of high yields where the dividends aren’t growing a little each year. But searching for a growing shareholder payment may help me uncover some enduring income shares.
And it seems like a good time to look right now. We’ve just been through a challenging few years for businesses. And many stopped or trimmed their dividends. So, it may be a sign of strength in an enterprise if it kept up dividend payments through the pandemic. And it’s even better if the company managed to raise its dividend right through 2020, 21 and 22.
One FTSE 100 enterprise that has delivered well is BAE Systems (LSE: BA). The company’s record of dividend-raising is unbroken since at least 2016. Every year, the shareholder payment has increased by a modest single-digit percentage. And City analysts expect an almost 7% rise in 2023.
In-demand products and services
The company earns its living in the defence, aerospace and security sector. And as such, it serves many of the defence needs of various countries around the world. So, BAE Systems tends to benefit when nations become focused more on security, such as right now.
In November, the company issued a robust trading update and a positive outlook. And it said the geographic diversity of the business underpins its growth ambitions. Indeed, many countries in which the firm operates have increased their spending to address the “elevated threat environment”.
However, the company has a robust multi-year record of generally rising revenue, earnings and cash flow. So, I’m not concerned that today’s circumstances represent some kind of blip of increased business. My guess is BAE Systems will find its products and services in high demand for decades. Although positive financial outcomes are never certain with any stock.
It’s possible that my optimism is misplaced. And one vulnerability is the reliance of the business on national budget decisions.
Nevertheless, the stock tempts me now. And I’d buy some of the shares if I had some spare cash. Meanwhile, with the share price near 860p, the forward-looking dividend yield for 2023 is running near 3.3%.
I admit that’s not the highest yield in the world. But key to this investment for me is that strong dividend growth.
