2015 has been another amazingyear for income seekers, withUK dividends hitting a third-quarter record after rising 6.8% to 27.2bn, according to Capita Asset Services. But it hasnt been all good news. A host of high profile FTSE 100 companies have slashed their dividends this year.
If Antofagasta, Centrica, Glencore, WM Morrison, J Sainsbury, Standard CharteredorTesco are in your portfolio, you may be hurting right now. Dividend cuts dont just torpedo your income, they alsosink the companys share price as well. In uncertain times, it is worth looking for companies that are committed to raising their dividends. Here are three of them.
Insurance giant Aviva (LSE: AV) is still a businessin recovery and recent performance has been patchy, theshare priceis down 6% in the last year. Avivawas forced to take a knife toits dividend in 2013 but chief executive Mark Wilson has been working hard to restore its reputation since then, and the smoothintegration of acquisition Friends Life is to his credit.
Avivascapitalpositionlooks reasonably strong which will hopefully preventfurther nasty surprises: the insurerexpects to obtain Solvency II approvalin December 2015. Wilson is looking to make Aviva leaner, meaner and most important of all for dividend seekers, cash keener. The yield is already back up at 3.7% as he looks tomake amends for the 2013 dividend disaster. With forecast earnings per share growth of 12% in 2016, loyalinvestors (which includeme) are on course tocelebrate income of 5% by the end of next year.
If you think that rate of dividend growth sounds impressive, stand by forLloyds Banking Group (LSE: LLOY). This stock was a mighty dividend machine before the financial crisis, and it looks like it might be again. Right now, it yields a dreary 1% but that is set to explode into life as Lloyds looks to revive its reputation among income investors. The yield is forecast to hit 3.3% by the end of this year. By the end of 2016, it is forecast to hit 5.1%. Better still, Lloyds should be wholly back in the private sector by then.
It wont all be plain sailing: EPS are forecast to fall from 8.43p this year to 7.85p in 2016, a drop of 7%. But Lloydsfocus on the UK domestic market should give greater stability and generate lots of cash, making this one of my favourite stocks on the index, especially at 9.1 times earnings.
SSE Of Income
Electricitycompany SSE (LSE: SSE) has offeredreliability in a turbulent world, having increased its dividend every year since 1992 at an annual compound rate of 10%. Managementis struggling to fund this largesse now, as dividend cover drops below its long-term target of 1.5 times. This week it increased itsinterim dividend by a more modest 1.1% to 26.9p.
SSEhas scaled back its ambitious target of above-inflation increases, but still aims to increase the dividend at least in line with RPI inflation (currently 0.8%).That said, I do worry about its long-term sustainability. Last year free cash flowdidnt cover dividend payouts, and that cantlast for long. At6.08%, the yield is perhaps a little too juicy. Management remains committed to progressive dividends, butmay struggle to fulfil its promises.
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Harvey Jones holds shares in Aviva. He has no position in any other shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.