I’ve been analysing dividend stocks for years now. If I’ve learned one thing, it’s that the best of the bunch are not necessarily those offering the biggest yields. Rather, it’s those that have solid records when it comes to regularly raising the amount of cash they return to shareholders. Here are three examples of the latter from the FTSE 350 (that’s the FTSE 100 and the FTSE 250 combined).
From the FTSE 100…
One company that’s shown itself to be as reliable as they come for dividends is tobacco giant Imperial Brands (LSE: IMB). With the exception of the anomaly that was 2020, the company has consistently bumped up its cash returns year after year. And right now, the shares yield a monster 7.7%.
This may be one reason why Imperial has done well year-to-date — up 13% in value. When times are tough, investors seek out businesses where earnings are fairly predictable. And despite suggestions that the tobacco industry might be in terminal decline, I can still see people puffing away for a long time to come.
Despite recent gains, Imperial trades on an undemanding valuation of seven times forecast earnings. That’s still cheap relative to other companies in the consumer defensives sector.
My concern here is whether we could see some profit-taking when growth stocks come back into favour. So, Imperial would not be a stock I would buy for income and capital gains. There’s also the issue of increasing — and understandable — anti-smoking regulation. But I still see this as a reliable dividend stock.
Safe as houses?
Since spreading my cash around different sectors is a good way of reducing risk, my other two top income stocks for today have nothing to do with tobacco.
FTSE 250 housebuilder Bellway (LSE: BWY) is another reliable dividend payer. It’s set to yield 6% in the current financial year.
Even so, Bellway’s record of hikes isn’t perfect. Like Imperial, the Newcastle-based business dropped the dividend substantially as the pandemic hit the UK. However, cash returns bounced back 135% in 2021 and are now nearly at pre-Covid levels. The payouts look likely to be easily covered by profits too.
Of course, a cooling of the housing market wouldn’t be great news. Then again, the huge and ongoing demand for quality housing in the UK suggests any reduction would be temporary if it happens at all.
Trading at less than six times earnings, a lot of negativity looks priced in to me.
Hot stuff
Today’s third FTSE 350 dividend stock has a lower profile than either Imperial Brands or Bellway. Nevertheless, heat treatment and thermal processing supplier Bodycote (LSE: BOY) is another reliable source of dividends. Interestingly, it didn’t drop its payout in 2020!
Can this streak continue? Well, the company announced that trading in the first three months of the year had been in line with expectations. However, it also stated that it was beginning to see “unprecedented volatility” in demand for its services “driven by material shortages at customers“. This makes for a foggy outlook, at least in the short term.
Still, I’m pretty confident that the income stream shouldn’t be interrupted. The 3.9% yield should be safely covered by profit unless trading falls off a cliff.
The shares also look reasonably priced to me at 13 times forecast earnings.