Where should I look in the stock market today for reliable income? It’s not an easy market for income investors, in my opinion. But I’ve identified three UK dividend shares I think should provide safe and rising payouts over the coming years.
Two of these companies are stocks I own myself — the third is one I’d like to buy at some point.
31 years of dividend growth
My first pick is meat producer Cranswick (LSE: CWK). This FTSE 250 firm is one of the UK’s largest producers of fresh and cooked meats, supplying British food to supermarkets and the restaurant trade.
The group’s results for the year to 27 March continued its long record of strong growth, with pre-tax profit up by 10.4% to £114.8m. The dividend was increased by 15.9%, supported by strong cash flow and a reduction in debt.
Cranswick has now delivered 31 years of unbroken dividend increases, averaging around 11% growth each year. That’s an exceptional record.
Of course, there are some risks. Cranswick’s size could make it harder to continue expanding at current rates. And if we start eating less meat for health and environmental reasons, I think this could become a serious problem.
Unfortunately, Cranswick’s success isn’t a secret. This UK dividend share trades on 20 times forecast earnings, with a dividend yield of just 1.8%. That’s lower than I normally look for, but this company’s excellent record means I’d still consider buying at today’s share price.
Another dividend hero?
My next pick almost had a 30-year dividend streak. But FTSE 250 merchant bank Close Brothers (LSE: CBG) was forced to cut its dividend payout last year, ending a run of nearly three decades.
This 140-year-old City bank focuses on specialist areas including business lending, car loans, wealth management, and stockbroking. It’s a mix that proved resilient in 2020. Although banking profits fell, record stock trading volumes caused profits at in-house stockbroker Winterflood to surge.
I hold Close Brothers in my UK dividend share portfolio and have no plans to sell. But there are risks. As a UK bank, the group is heavily dependent on the fortunes of the UK economy. If the early recovery we’re seeing turns sluggish, losses could mount.
Rising inflation or interest rates could also cause unexpected problems, after so long at low levels.
Close Brothers’ shares offer a forecast dividend yield of 3.6% for the current year. I reckon that’s a better option than the big FTSE 100 banks. It’s where I’ve put my money.
An under-the-radar UK dividend share
Like food, alcohol is usually seen as a safe, defensive investment. One smaller company in this sector is Stock Spirits (LSE: STCK). This £550m firm sells a range of branded vodka, brandy, and other spirits in Poland, the Czech Republic, and Italy.
Performance over the last year has suffered due to the closure of restaurants and bars, which historically generated about 15% of sales. But the group’s operating profit only fell by 2% during the six months to 31 March, which suggests to me that it’s been able to pick up new business elsewhere.
Broker forecasts suggest Stock Spirits earnings will be flat this year, before returning to growth next year. At current levels, the shares offer a forecast dividend yield of 3.1%, covered twice by earnings. I reckon that’s fair value and have been buying the stock for my portfolio.