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Who doesn’t like earning dividends from shares, then watching as those dividends grow over time? Quite a few UK stocks have a strong track record of dividend growth.
Now, past performance is not necessarily indicative of what may happen in future. But here is a trio of UK stocks I think could potentially grow their dividends regularly in years to come.
Phoenix Group
The insurer Phoenix Group (LSE: PHNX) isn’t a household name, though with its planned name change to Standard Life, that may change.
Well-informed investors are clued in about the company’s 7.6% dividend yield, the highest of any FTSE 100 firm apart from Legal & General.
Like Legal & General, Phoenix aims to grow its dividend per share annually. It has done so over the past few years.
The financial service business is focussed on savings and retirement. With around 12m customers, it is a very substantial company.
It’s also strongly cash generative, helping to underpin the dividend. Phoenix’s businesses benefit from economies of scale, long-term policies being in place, and proven investment nous.
One risk I see is a property downturn forcing Phoenix to write down the value of its mortgage book. On balance, though, I see it as a UK stock for investors to conider.
Cranswick
Another name that’s unlikely to trip off most people’s lips is Cranswick (LSE: CWK).
But while many people might be unfamiliar with the FTSE 250 food company, some of its products may well have passed their lips. Cranswick’s customer list includes swathes of the country’s retailers, who sell its products under their own names.
Demand’s likely to stay high: people need to eat and Cranswick has developed competitive pricing and economies of scale.
Economies of scale are not always positive, though. Allegations last year of cruelty at some of the company’s large pig farms brought a reputational risk. I was therefore pleased to see the company commission an independent review into how it treats its swine and act on it.
Cranswick has grown its dividend per share for 35 years in a row.
The dividend last year was covered more than twice over by diluted earnings per share. With strong business performance, I think it could keep growing.
But at 18 times earnings, the Cranswick share price is not tasty enough right now for me to add the 2%-yielder to my portfolio.
Dunelm
It has not been a good month for homewares retailer Dunelm (LSE: DNLM). Its share price has tumbled 15% since the turn of the year.
That leaves it 19% below where it stood five years ago. At today’s price, I think investors should now consider this UK stock.
The share price fall was due in part to a profit warning this month. There are risks that weak consumer spending could eat into demand for some of Dunelm’s product lines, hurting revenues and profits.
But I see this as a well-run business with a strong positioning in the market. It has proven its model through multiple economic cycles. I expect it can continue to generate significant cash flows.
The company’s special dividend has moved around. But its ordinary dividend per share has kept growing annually in recent years.
I see the business as strong enough to maintain that trend. The ordinary dividends alone currently offer a 4.7% yield.
