5 Dividend-Raising UK Stars

11/02/2012 10:30 am EST


In a time of overall decline for Britain's dividend payers, Kevin Godbold of The Motley Fool UK evaluates five names that could buck the trend.

In an outcome that's tough on investors, the FTSE-100 has failed to deliver a rising dividend payout over the last few years.

Just look at the iShares FTSE-100 ETF (London: ISF), for example. This is an exchange traded fund that tracks the benchmark index, and we can see the aggregate payment from Britain's top 100 companies has yet to regain its pre-recession peak:

That's disappointing. But some companies within London's premier index have performed well on dividends, despite these austere times, and this series aims to seek them out.

Over the last few weeks, I've looked at Prudential (London: PRU), Aberdeen Asset Management (London: ADN), Next (London: NXT), Tesco (London: TSCO) and Rolls-Royce Holdings (London: RR). Let's see how each scored against my dividend growth and valuation criteria (each score in the chart is out of a maximum possible five):

There is plenty of industry diversification available with this batch of dividend-raising stars.

Although not immune to economic cycles, insurance giant Prudential managed to maintain its progressive dividend policy through the recent financial crisis. If investors can live with the firm's esoteric financial reporting, Prudential could be a good dividend bet going forward.

The directors see most opportunity for future growth in Southeast Asia. If that growth generates free cash, it can only be good news for the dividend.

Asset Management
Aberdeen Asset Management describes itself as a pure asset management company. Last year, it earned about 94% of its revenues from management fees. Around 44% was from managing equities, 24% from fixed income, 15% from alternative investment strategies, 12% from property and 5% from the money markets.

Although the directors expect slow global growth for years ahead, they seem confident that opportunities to work assets hard for their owners will continue to exist. If that's true, it can only be good news for the dividend, judging by past performance.

Fashion Retail
Business has been brisk for clothing, flowers, gifts, sports gear, and electrical retailer Next. Last year, around 64% of sales were through its Retail division, 32% through its Catalog and Internet Directory division, just over 2% from its fledgling International Internet division, and the rest from other sources.

Going forward, the company seems committed to expanding into new store space as well as driving Internet sales. That growth, if turned into solid flows of free cash, should bolster the prospects for the dividend, despite the cautious outlook.

Grocery and General Retail
Right now, the director's of Britain's largest retailer, Tesco, have firmly re-focused on the core UK market and a domestic-investment program is underway. The firm has some catching up to do at home, but I'm with those that think it can achieve that and go on to grow international sales and profits.

If the company pulls off that double-whammy, there's potential cheer for those using the current share-price setback to lock in a decent dividend yield, as the progressive dividend policy continues.

Integrated Power Systems
Rolls-Royce's engines power both military and civil aircraft, and the firm is a supplier of power-generating turbines to the marine and energy markets. The firm enjoys good business in both the initial equipment supply and the servicing aftermarkets of the industries it serves.

In 2011, around 49% of revenues came from civil aerospace, 20% from defense aerospace, 20% from the marine market, and 11% from the energy industry.

Right now, the order book stands at around £60 billion ($96.6 billion). Going on past performance, there seems every chance of that potential turnover swelling the cash coffers, which looks promising for the continuation of the progressive dividend policy.

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