Dividends are a key component of successful investing whether taken as an income to support retirement or reinvested to compound future total returns.
With interest rates set to fall as inflation is gradually brought back under control dividend yields will become more competitive as a source of income compared with income from cash and bonds.
In this article we scour the FTSE 350 for the companies which have increased their dividends the most over the last 12-months rather than focusing on the highest yielders or the biggest absolute dividend payers. To identify our list we screened for the largest increase in the most recent annual dividend declared. We have not included special dividends.
THE RESETTERS
The pandemic forced many companies to reduce or suspend their dividends, which means some of the biggest increases should be seen in the context of rebuilding the payout back up to a sustainable level.
A good example and top of the list of biggest dividend increases is private hospitals group Spire Healthcare (SPI) which hiked the dividend by 320%. Having suspended dividend payments during the pandemic, the company is in the process of bringing the payout back to pre-Covid levels.
In the same camp is low-cost airline and holidays operator EasyJet (EZJ) which recently (12 November) revealed full year profit growth of 34% amid strong consumer demand.
The 2024 dividend was increased by 169% to 12.1p per share and the company expects to payout 20% of headline profit in 2025, implying another 10% hike to 16.2p according to consensus analysts’ forecasts.
That would equate to less than half 2019’s payout of 37p, which was two-times covered by earnings, equivalent to paying out half of earnings per share. The new shareholder returns policy revealed at the start of 2024 left the door open for further increases beyond 2024.
Both are examples where the dividend remains shy of pre pandemic levels.
Hotels company PPHE (PPH) suspended its dividend during the pandemic but has quickly returned to the prior level of payout.
The dividend was hiked by 140% to 36p per share, reflecting an enhanced interim payout of 16p per share and final dividend of 20p, in line with a strong bounce back in business performance.
Consensus forecasts call for a further 27% increase in the dividend over the next two years.
THE ACCELERATORS
The banks were allowed to stay open for business in the pandemic and while many reduced the size of the payout they have since quickly moved the dividend up beyond where it was before Covid.
The steep increase in interest rates was also initially helpful as it fed into widening net interest margins, boosting profit and cash flow. In recent times the banks’ cost of funding deposits has also moved up, reducing some of the benefit of higher net interest margins.
Asia focused banks HSBC (HSBA) and Standard Chartered (STAN) have increased their dividends by 90.6% and 50% respectively. This pushed both banks’ dividends beyond 2019 levels.
Interestingly, both banks have managed to do this while paying out less of their earnings compared with before the pandemic which, speaks to the strong profit growth notched up in recent years.
In 2019 HSBC earned $7.4 billion of net profit or $0.58 of earnings per share and consensus forecasts for the year to the end of December 2024 calls for $23.7 billion of profit and $1.30 of earnings per share.
Primark to sugar and food ingredients conglomerate Associated British Foods (ABF) only skipped its dividend in 2020 and has since quickly built it back up to beyond where it was in 2019, hiking by third in its last financial year to the end of August.
If consensus forecasts are met for 2025 the dividend will grow a further 9% to 68.6p per share, close to 50% higher than before the pandemic and 2.8 times covered by expected earnings.
Investors often question the logic of the operating different businesses within one corporate structure, but the controlling Weston family have always maintained that the diversification benefits are worth it, as it proved during the pandemic when many retailers saw their earnings collapse.
A CONSISTENT APPROACH
Take a casual look at the dividend track record of Hikma Pharmaceuticals (HIK) and the pandemic does not seem to register for the maker of generics, injectables and branded drugs.
The dividend steadily increased in high single-digits during lockdown, and in the financial year to 31 December 2023 the company hiked it by 29% to $0.73 per share. Consensus forecasts see the dividend rising by 3% in the current year to $0.75, some 60% above the $0.47 paid in 2019.
Hikma’s resilient portfolio of global businesses not only provided defensive qualities during the pandemic but now seem to be firing on all cylinders. In February 2024 the board said it intends to progressively increase the dividend reflecting confidence in the long-term growth prospects of the group.
These articles are provided by Shares magazine which is published by AJ Bell Media, a part of AJ Bell. Shares is not written by AJ Bell.
Shares is provided for your general information and use and is not a personal recommendation to invest. It is not intended to be relied upon by you in making or not making any investment decisions. The investments referred to in these articles will not be suitable for all investors. If in doubt please seek appropriate independent financial advice.
Investors acting on the information in these articles do so at their own risk and AJ Bell Media and its staff do not accept liability for losses suffered by investors as a result of their investment decisions.
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