My recent article describing a sustainable income screen generated some interesting ideas for dividend shares to buy now. This week I’m going to take a closer look at three of these to see why they really might have what it takes to deliver a reliable, growing income.

While big cap stocks are commonly seen as the safest choice for income seekers, my screen results include a much wider range of sizes. I’ve chosen a representative mix for this piece, with market caps from £125m through to £85bn.

I tend to focus on a company’s financial track record and dividend metrics when I’m assessing a stock. But it’s also worth checking what the company’s stated dividend policy actually is – there are two main types:

  • A progressive payout, where the company targets a small increase each year.

  • A payout ratio-based dividend, where a proportion of earnings is paid out. The payout may fall if earnings decline.

I think that both strategies have their place, but it’s important to understand which one you’re buying into. The first stock I’m going to look at pays dividends as a proportion of earnings. But I think it still has attractions as an income stock.

You can see and duplicate my sustainable dividend screen here.

Rio Tinto

FTSE 100 mining giant Rio Tinto (LON:RIO) scrapped its previous progressive dividend policy during the mining crash of 2016. In its place, the company adopted a payout-based dividend policy:

“to return 40-60% of underlying earnings, on average through the cycle to shareholders as dividends”

Ironically, commodity markets rebounded more quickly than anyone expected in 2016. Rio’s dividends since then have been higher than any others in the group’s history:

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At the heart of this business are its giant, low-cost iron ore mines in Western Australia. When iron ore prices are high – driven by steel-making demand in China – these large-scale assets are simply cash machines.

Iron ore generates about 80% of Rio’s profits. Aluminium and copper come in a distant second and third. Other minerals, including lithium – essential for EV batteries – barely register on the scale.

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Looking ahead, the company hopes to expand its copper output through its…

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