The FTSE 350 companies delivering inflation-busting dividends

Wednesday, September 11, 2019 - 17:27

Income investors can easily be lured in by high yields, but instead of taking a big ticket payout on day one they need to hunt for income that’s going to increase each year to keep up with inflation. Inflation gradually eats away at your money each year, so if you’re relying on stocks to hand you income you want to make sure they are at least beating rising prices.

Over the past decade the CPI measure of inflation has averaged 2.1%, which doesn’t sound like much, but means over that 10 years the value of your money has reduced by 21%. For example, something purchased for £1,000 10 years ago would cost you £1,300 today.

There are 20 FTSE 350 companies that have managed to increase their dividend by more than inflation every year for the past 10 years, and they span a range of sectors. The 10-year average annual increases range from an impressive 34% to a very respectable 7%.

Investors looking for sustainable payers should also consider the level of earnings cover that the company has. We’ve excluded any companies with less than 2 times earnings cover, meaning that the earnings were less than double the level of dividends, as it can indicate an unsustainable dividend policy.

The highest 10-year average yield comes from equipment rental company Ashtead, with 34%. The company managed to increase its dividends in the depths of the financial crisis, and also has an impressive amount of cash to help shore up future payouts. The risk is that its fortunes are very dependent on any downturn in US growth.

Another top payer is high-street retailer WH Smith, which has delivered annual dividend growth of 15% over the past decade. The yield on the shares at the moment is 2.7%, and this is more than twice covered by earnings. However, chief executive Stephen Clarke is leaving his role in October, after overseeing a 177% rise in the share price during his 15 year tenure.

Specialist banking company Paragon has increased its dividend by an average of 22% a year over the past 10 years – no mean feat. The yield on offer at the moment is also a sizeable 5.3%, but this is covered by earnings 2.4 times, which should give investors some comfort.

A note of caution that investors should bear in mind is that these figures take you back to 2009, just after the financial crisis, meaning that many of these companies were coming from a low starting point and then enjoying a sizeable rally in investment markets.

The FSTE 350 companies that have delivered inflation-beating dividend increases over the past 10 years

Company 10-year average annual dividend increase
Ashtead Group  34.30%
Paragon Banking Group  22.00%
Intertek Group  17.60%
Croda International  17.30%
WH Smith  14.50%
Dechra Pharmaceuticals  14.10%
Diploma  13.60%
Hill & Smith Holdings  12.60%
Spirax-Sarco Engineering  11.20%
Spectris  10.40%
Genus  10.40%
Hilton Food Group  10.30%
Cranswick  10.10%
Informa  9.50%
Bunzl  9.30%
Fisher (James) & Sons  9.30%
Associated British Foods  8.50%
Sage Group 8.30%
Ultra Electronics Holdings  7.30%
Halma  7.10%
Consumer Price Index* 2.10%

Source: Sharepad/AJ Bell *10-year average.

Methodology: The companies all increased their dividends by more than the CPI measure of inflation each year. Investment trusts and companies with fewer than 10 years of data were excluded, as were companies with less than two times earnings cover – meaning that the earnings were less than double the level of dividends, as it indicates an unsustainable dividend policy.

These articles are for information purposes only and are not a personal recommendation or advice.


ajbell_laura_suter's picture

Laura Suter is Personal Finance Analyst at AJ Bell. She is a multi-award winning former financial journalist, having specialised in investments. Laura joined AJ Bell from the Daily Telegraph, where she was investment editor. She has previously worked for adviser publications Money Marketing and Money Management, and has worked for an investment publication in New York. She has a degree in Journalism Studies from University of Sheffield.