Dividend growth continues to be one of my major considerations at the moment, which is why I’m taking a look at the investment outlooks of SSE PLC (LON:SSE) (SSE.L), Aviva plc (LON:AV) (AV.L), GlaxoSmithKline plc (LON:GSK) (GSK.L), Unilever plc (LON:ULVR) (ULVR.L) and British American Tobacco plc (LON:BATS) (BATS.L).
SSE’s dividend growth rate may seem relatively unimpressive to some investors. However, its goal of matching inflation could be a worthwhile performance if inflation remains relatively high. Since SSE has dividend cover within its target range, its aim seems to be realistic. Although political and regulatory risk remains high, I feel the company has income investing appeal due in part to its defensive business model.
Aviva’s payout ratio is now set to be increased to as much as 60% from its previous level of 50%. This could allow its investors to partake in a greater share of its improving profitability. With a business model that looks set to generate further growth for the business in future, Aviva seems to be a sound income stock. With a dominant position in life insurance and investments in fast-growing industries, I’m optimistic about the company’s future.
GlaxoSmithKline’s dividend yield of 6% is hugely impressive in my view. I also think the business has scope to grow its bottom line over the medium term, with its pipeline continuing to offer a potential catalyst. Although dividends are not due to rise in the next couple of years, I feel the company’s strong earnings growth profile means that GlaxoSmithKline could deliver a rising payout to its investors in the long run. In the meantime, a 6% yield is one of the highest in the FTSE 100.
Unilever, in contrast, has a dividend yield barely above 3%. While this may be only in line with inflation, the company is forecast to grow its bottom line at a rapid rate in future. This could create a catalyst for high growth in dividends in future. With Unilever having a diverse business model which appears to have a solid balance sheet and improving cash flow, its risk to reward ratio seems to be appealing.
British American Tobacco’s investment in reduced risk products could be a catalyst to push its share price higher in the long run. It is due to generate £5 billion per annum in sales from e-cigarettes and other next generation products by 2022. If this is met, it could fundamentally shift the investment case of the stock and lead to a higher share price. With a 4% dividend yield, I think British American Tobacco offers good value for money.