British American Tobacco
Cigarette manufacturer British American Tobacco (LSE: BATS) (NYSE: BTI.US) paid dividends of 66.2p for 2007. This was increased, year-on-year throughout the financial crisis. By 2012, the payout was 134.9p.
That’s an average annual growth rate of 15.3%.
Smokers are loyal (addicted) customers. This brings a high degree of certainty to BATS’ earnings. Expectations are for earnings per share (EPS) to rise 8.4% this year. The dividend is expected to increase similarly, offering a yield of 4.2%.
However, I have concerns about the company’s ability to increase sales in the long term. In March, analysts were expecting BATS to report EPS of 230p for 2013. That figure is now 223p — suggesting that it is not just me that has doubts.
Prudential
Prudential (LSE: PRU) shares are 132% up in the last five years. In that time, dividends have increased from 18p to 29.2p per share — an average annual increase of 10.2%.
Prudential’s geographical spread of business helped the company to come through the financial crisis relatively unscathed. While EPS dipped in 2008, by 2010 it was ahead of pre-crisis levels.
Slower growth is forecast for the next two years. The consensus of analyst forecasts is for a 6.6% rise in dividends this year, followed by the same rise again in 2014.
Forecasts put the shares today on a 2014 P/E of 12.2, with an expected yield of 3%. That’s not expensive for such a successful company.
Reckitt Benckiser
Reckitt Benckiser (LSE: RB) is the consumer products company behind big brands such as Harpic, Calgon and Nurofen. These brands give RB pricing power that flows through to profits and dividends.
In the last five years, Reckitt Benckiser has increased its dividend at an average rate of 19.5% a year.
Dividend increases at the company are expected to slow this year and next. City analysts are forecasting a 3.6% rise this year, followed by a 5.4% increase for 2014. EPS is forecast to increase at a slightly lower rate. This puts the shares on a 2014 P/E of 16.6, with a forecast yield of 3.2%.
Shares in a company like RB are only ever cheap in a market panic. Would you be brave enough to buy then?
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> David does not own shares in any of the companies mentioned above. He has bet that the share price of British American Tobacco will fall.