One of the many things I love about dividend-paying stocks is that the best payincome of up to 6%and 7% a year at a time when the average savings account pays just 0.4%. This makes them one of the few investments toprotect your savings frominflation, nowstanding at 2.6% in the year to June.
Income fun
They dont just give you an inflation-busting income, they allow you to lock into a risingincome stream as well, because most companies aim to increase their dividend year after year.New research from AJ Bell shows that an impressive 27 companies on the FTSE 100 haveincreasedtheir dividend every year for the past 10 years, while two have increased their dividend for more than 30 years.
The first of these is a global investment trust calledScottish Mortgage (LSE: SMT), launched in 1909, which has hikedits dividend every year for the past 34 years. I am a long-standing fan of this fundbehemoth, which now has more than 5.5bn of fundsunder management. And it isnt hard to see why, given that it has delivered a total return of 225% over the past five years alone, more than double the 101% return on its global equity benchmark, according to Trustnet.com. It is up an incredible 42% over the past year alone.
The Scottish play
Better still, Scottish Mortgagehas thrashed the marketwhile offering bargain basement charges, totallingjust 0.45% a year. In March, it deservedly became only the fourthinvestment trust ever to ascend to the FTSE 100. It has benefitted greatly from its strong US bias, with almost half the fund invested in US equities, plus 20% in each ofthe eurozone and China. Top 10 holdings include Amazon, Tesla, Alibaba, Facebook, Google owner Alphabet and Ferrari. Investors who already feel they have too much US exposure maywant to look elsewhere.
Oddly, its primeweakness is the yield, currently a meagre0.75%. However, that partly reflects its stunningshare price growth. One thing is for sure, further progression looks baked-in.
Platinum investment
The second-best long-running dividend payer was a surprise to me. The last time I looked at platinum and speciality chemicalsproducerJohnson Matthey (LSE: JMAT)was in September 2013, almost four years ago, when I thought it looked attractive but a little pricey. The dividends have kept rolling since then, with the company increasing its payout every year for the last 31 years, according to AJ Bell.
The downside is that share price growth has been disappointing, with the stock down10% in the past year. Few investors will be overly excited by the current starting yield, which is 2.63%, although as we know this could continue rising for decades.
Chemical brother
Last month, Johnson Mattheyposted solid full-year sales and profits growth, with profit before tax up 19%, helped by a big currencybooster. Yet investors were disappointed with yieldprogression, with the dividend uponly 5%. Brokers were also disappointed to see no special dividend. That is what happens when youset yourself a high benchmark. However, trading at just 13.63 times earnings, now could be a good entry point to those who have long-term faith in the power of dividend progression.