There is a lot of cutting going on at the moment. The oil industry is cutting capex. FTSE 100 miners are cutting production. The bigsupermarkets are cutting their expansion plans. And a numberFTSE 100 companies have beencutting their dividends, led byAntofagasta,Centrica,Glencore,WM Morrison,J Sainsbury,Standard CharteredandTesco. So you will be pleased to hear that not everybody is cutting back. Here are three FTSE 100 companies with plans to growtheir dividends!
British American Tobacco (LSE: BATS) is famed for its dividend reliability despitethe shrinking appeal of tobacco products amonghealth-conscious middle-class consumers in the West. Right now, it yields just over 4%, and its perceived defensive nature has spared it the worst of this years stock market shocks. Over five years it is up 65%, againstjust 5% on the FTSE 100. Dividend success can translate into growth glory as well.
The tobacco giantsrecent trading statement showed revenue growth of 4.2% over nine months at constant exchange rates, driven by the success of its Global Drive Brands, which have helped BATS build market share amid overall decline. I still have long-term doubts about an industry that has relied on emerging markets for around 70% of sales, as I expect Western health trends to eventually wash ashore inAsia. At 17.85 times earnings, British American Tobacco now costs more than 20% of above its long-term average but income seekers will remain addicted given that management has hiked the dividend every year since 1999, with share buybacks on top.
National Grid (LSE: NG) has been my favourite utility play for some time and I felt vindicated by its strong first-half earnings, with profit before tax up21% to 1.37bn and earnings per share (EPS) up 22% to 28.4p. Right now it yieldsa juicy 4.73% but there is even more good news, with chief executive Steve Holliday confirmingrumours that it has considered selling a majority stake in its gas distribution business and returning the proceeds to shareholders, probably in a special dividend.
Any sale should go through in early 2017, afterwhich the board will continue tofund its investment programme and maintain the policy of increasing dividend per share by at least RPI for the foreseeable future. Still worth buying at 15.77 times earnings.
It feels a long time since Royal Mail (LSE: RMG) peaked at around600p shortly after launch. Today you can buy it for 440p. The stock may have overshot on the downside as well as the upside, because now it trades at 10.3 times earnings and delivers a healthy yield of 4.76%, covered twice.Chief executive Moya Greene knows the scale of the challenge ahead, as Royal Mail fights for share in the competitive parcels business, where competitors now include Amazon and Argos, while wringingrevenues out of the declining letters sector.
Management is committed to increasing the dividend, that should be doable given its heavy cash generation and ability to raise cashfrom selling off its portfolio of London property. EPS are forecast to fall 22% in the year to March due to restructuring costs, then rebound a solid4% in the year to March 2017. Royal Mail has a battle on its hands but todays valuation and nicely-covered yield give itstrong defensive abilities.
Top dividends like these look unmissable asthe prospect of a UK interest rate hike recedesonce again.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended shares in Centrica. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.