The passive income I earn from shares is one reason I invest. To grow that income, I either need to buy more shares or benefit from a company I own raising its dividend. With that in mind, here are three UK shares I would consider for my portfolio based on their strong dividend growth prospects.
Judges Scientific
A growing company based on the Buffett approach is how I would describe Judges Scientific (LSE: JDG). The firm buys small scientific instrument makers at attractive valuations, then largely leaves them alone to get on with what they do best.
For such instruments, accuracy matters. So customers are willing to pay premium prices. Demand is likely to remain strong, although one short-term risk I see is the continued shutdown of some facilities due to the pandemic leading to sales being postponed or cancelled.
In recent years, percentage dividend growth has consistently been in the double-digits. Last year the dividend went up 20%. While the price-to-earnings ratio of 28 is not cheap, I find the share price more attractive than a few months ago. I am keeping an eye on Judges as at the right price, I would be happy to buy it.
Cranswick
Another dividend growth share I am eyeing for my portfolio is Cranswick (LSE: CWK). The company produces a range of foodstuffs, such as fresh pork and cooked meats. In the past five years, revenues have grown at a compound annual rate of 13%. Adjusted earnings per share grew even faster.
On the dividend front, the five-year compound annual growth rate was 13.3%. Cranswick also has an impressively consistent record of raising its dividend annually. The payouts have gone up each year since the early 1990s.
Past performance is not a guide to what will happen next. But I reckon growing demand for meat in developing markets means that the company can continue to grow revenues. A shortage in some markets could help maintain attractive profit margins. If that leads to a glut of meat production, profits could fall in future. But at the moment, I would consider adding this proven dividend growth share to my portfolio.
Diageo
More modest dividend growth is the norm at brewer and distiller Diageo. Last year it saw dividend growth of 3.8%.
Like Cranswick, the company has raised its dividend annually for decades. That reflects the pricing power the company enjoys, as well as its continued push into new markets. By building a portfolio of premium brands such as Guinness, the company has been able to encourage customer loyalty even in the face of price rises. So while cost inflation poses a risk to profits, over time I reckon Diageo ought to be able to maintain attractive profit margins. That could help keep dividends growing.
Building dividend growth into my portfolio
I like the prospect of owning shares with strong dividend growth potential. But I also consider yield. While Judges has been growing its dividend, for example, the yield remains below 1%.
But each of these three shares has what I see as an attractive business model I think can help support dividend growth in future. If I can buy them at an attractive valuation, I would be happy to hold them in my portfolio.