There hasn’t exactly been much good news for income investors lately. A flick through the financial press suggests that corporate revenues and profits have slumped, dividend growth is faltering, dividend cover is stretched and payout cuts are the order of the day. For investors hunting for yield, this is hardly ideal in a low rate environment.
In the past we’ve written a lot about strategies for finding some of the strongest, safest yields around (such as here). But given the signs that dividend growth is under pressure, it’s worth revisiting a classic approach in income investing - and one that’s performed well over the past two years - Dividend Achievers.
Dividend Achievers are stocks with a strong track record of dividend growth. Unsurprisingly, they have a special place in the hearts of some dividend investors. By consistently upping their payouts year-in and year-out, these companies are making a big statement about their confidence in the future.
It’s something that Peter Lynch is particularly fond of. In his book, Beating the Street, the one-time star fund manager at Fidelity Investments wrote: “The dividend is such an important factor in the success of many stocks that you could hardly go wrong by making an entire portfolio of companies that have raised their dividends for 10 to 20 years in a row.”
But before we explore ways of using this strategy, let’s have a closer look at the current climate for dividends…
First the bad news
My inbox seems to be stuffed with worrying news. For a start, revenues at the collective top 350 quoted companies that reported results between January and March this year fell by 15.1% on 2015. According to The Share Centre, that represents a drop of £191bn. At £1.07 trillion, the total revenue pot is at its lowest level since 2007.
Naturally, profits have taken a drubbing too. Operating profits from companies reporting in the first quarter of 2016 fell by two-fifths to £55bn. Pre-tax profits were down nearly 43% to £50.3bn.
A glance at dividend data seems to reflect this dip in performance. On one hand, payouts from UK companies have risen strongly since the end of the financial crisis. Figures from Capita Asset Services show that the total pot has risen from around £58 billion in 2009 to a forecast £78 billion in 2016. But their latest report claims that 2016 is set…
