City of London Investment Trust (LSE: CTY) has just delivered its 48th consecutive annual dividend increase. At a share price of 380p, the trust yields 3.9%.
Picking great dividend shares has helped City of London outperform the FTSE All-Share Index over the past three, five and 10 years.
I’m going to take a look at three of City’s current favoured stocks: Royal Dutch Shell (LSE: RDSB), BHP Billiton (LSE: BLT) and Berkeley Group (LSE: BKG).
Royal Dutch Shell
Shell has become City’s largest holding (from fourth largest) after the trust added to its stake in the oil giant during its latest fiscal year. The investment manager noted:
“With a dividend yield of over 5% (and a dividend that has not been cut since the Second World War) as well as latent potential in its large asset base, Royal Dutch Shell appeared attractive”.
The shares, currently trading at 2,490p, have risen somewhat since City was buying, but still offer an attractive forward dividend yield of 4.7% (the FTSE 100 as a whole yields 3.3%). Shell’s price-to-earnings (P/E) ratio of 10.5 is also on the value side of the Footsie’s long-term average of 14.
BHP Billiton
Mining giant BHP Billiton, whose shares are currently trading at 1,810p, is a company in which City has increased its stake more recently. The investment manager told us:
“Additions were made to the holding in BHP Billiton given the attractive dividend yield and strong balance sheet and ahead of the spin-off of its smaller operations”.
The forward dividend yield, at 4.3%, is not as big as Shell’s, but City was actually buying BHP Billiton when the share price was higher, and the yield lower. So, investor’s today are getting a better deal than the trust’s managers. BHP Billiton’s P/E of 12 is also on the value side of the FTSE 100.
Berkeley Group
Last, but not least, City has also recently been upping its exposure to the housebuilding sector. The trust’s manager told us:
“Additions were also made to UK housebuilders, Berkeley, Taylor Wimpey and Persimmon, which are enjoying strong trading conditions and are likely to produce large dividends over the next year”
The smallest of the three, Berkeley, particularly catches my eye. Berkeley has a commitment to pay 180p in dividends within the next 12 months, giving a whopping yield of 7.6% at a current share price of 2,365p. Not only is Berkeley’s yield bigger than Shell’s and BHP Billiton’s, but also its P/E is lower at a bargain-basement 9.7.