I like passive income – especially when it gets bigger over time. That’s why I keep an eye on shares that raise their dividends often. Here are three UK dividend raisers I would consider adding to my portfolio today.
Spirax-Sarco (LSE: SPX) is among the longest standing UK dividend raisers. Its increase of 7% last year already sounds attractive. But I think it looks even better considering that it continues a track record of annual dividend increases stretching back over half a century. The dividend compound annual growth rate over 55 years has been 11%.
The company isn’t a household name, but it enjoys a strong reputation among its industrial client base. It focusses on engineering solutions for applications such as steam systems and temperature management. Any operational outage here can cause significant losses, so companies are willing to pay for the sort of specialised, often bespoke solutions Spirax-Sarco provides. An investor event last month provided a detailed overview of the Spirax-Sarco investment case.
Dividends are never guaranteed, though. One risk with Spirax-Sarco is the exchange rate movements it is exposed to due to its large global footprint. That could reduce profits.
Progressive dividend payer DCC
Although it is based in the Irish Republic, DCC (LSE: DCC) is listed on the London stock market. Like Spirax-Sarco, this successful business is not a famous name. That is partly because it operates under a variety of brand names.
DCC spans multiple business areas. These include selling liquefied petroleum gas, heating fuels, medical products, and technology services. The company’s business model has been highly profitable. In the company’s latest full year, revenue fell 9.1% but earnings per share still rose 19%.
A dividend increase of 10% helps explain why DCC is on my list of UK dividend raisers. That double-digit increase is just the latest piece of good news about dividends for DCC shareholders. The company has raised its dividend each year for 27 years, at a compound annual growth rate of 13.9%.
DCC’s exposure to fuel markets is a risk. Shifting patterns of fuel consumption could hurt future demand for gas.
Drinks giant among UK dividend raisers
A large company on my list of UK dividend raisers is Diageo (LSE:DGE). Capitalised at £81bn, the FTSE 100 member owns brands such as Johnnie Walker and Captain Morgan.
Investors could raise a glass of these to the company’s impressive track record when it comes to dividends. It has been increasing its dividend each year for over three decades. Some serial dividend increasers have a low yield. Although I would consider buying Spirax-Sarco, for example, its yield is only 0.9%. Diageo yields 2.0%.
Alcoholic beverages sold under premium brands are a business model I like. Ingredient costs are fairly low but the pricing can be high. That enables attractive profit margins. Diageo’s global reach also enables it to benefit from economies of scale. But one risk is the declining popularity of alcoholic drinks in some markets. That could lead to smaller profits in future, if it continues.
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Christopher Ruane has no position in any shares mentioned. The Motley Fool UK has recommended Diageo. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2021