All information is correct as at 31 December 2022 unless otherwise stated.
The S&P UK High Yield Dividend Aristocrats Index tracks shares that have followed a managed-dividend policy of increasing or stable dividends for at least seven consecutive years.
Here are ten of its largest members.
| S&P UK High Yield Dividend Aristocrats ten largest shares (in alphabetical order) | Average annual dividend growth over the last five years | Forward dividend yield |
|---|---|---|
| Ashtead Group | 18.7% | 1.5% |
| BAE Systems | 3.3% | 3.3% |
| British American Tobacco | 4.9% | 7.6% |
| Bunzl | 6.3% | 2.4% |
| Diageo | 4.1% | 2.5% |
| Legal & General | 10.7% | 8.1% |
| London Stock Exchange | 17.1% | 1.6% |
| National Grid | 1.1% | 5.7% |
| Relx | 6.7% | 2.5% |
| Unilever | 6.3% | 3.8% |
Three of these dividend aristocrats stand out to us – we think dividend growth could be sustainable over 2023 and beyond.
Remember, all investments and any income they produce can fall as well as rise in value, so you could get back less than you invest. No dividend is ever guaranteed either.
Defence giant BAE Systems has exceptional revenue visibility, with an order backlog of over £52bn. Recently improved cashflow generation underpins the prospective dividend yield of 3.3%.
The current geo-political backdrop looks likely to keep global defence budgets elevated. But government spending in this area can be fickle, a risk to be mindful of.
British American Tobacco (BATS) is the world’s second largest tobacco company. While tobacco volumes are falling, full year sales are expected to top £28bn, with annual growth of just over 9%. Margins have been consistently high, as has cash conversion, which supports the 7.6% yield. Next generation products, like e-vapour and heated tobacco, are the main drivers of future growth. BATS is targeting profitability from these products by 2025. But there are questions as to whether they can offset declines in traditional tobacco.
Investing in defence and tobacco companies can be controversial, with some institutional investors shunning them altogether. This can limit the upside potential in both BAE Systems and BATS.
Bunzl sources, consolidates, and delivers a range of essential products to businesses, which gives it some defensive qualities.
Its prospective yield is the lowest of the three stocks profiled here, at 2.4%. But, on average, the dividend has been growing 10% a year since 1992.
The outlook remains positive, with the group enjoying good organic revenue growth and a positive contribution from recent acquisitions. However, a worse than expected economic contraction could dent performance.
Investing in individual companies isn’t right for everyone. That’s because it’s higher risk, your investment depends on the fate of that company. If that company fails, you risk losing your whole investment. If you cannot afford to lose your investment, investing in a single company might not be right for you. You should make sure you understand the companies you’re investing in and their specific risks. You should also make sure any shares you own are part of a diversified portfolio. Ratios and figures shouldn’t be looked at in isolation.
This article isn’t personal advice, if you’re not sure if an investment’s right for you, seek advice. All investments fall as well as rise in value, so you could get back less than you invest.
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Unless otherwise stated, estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates aren’t a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.
Derren leads our Equity Research team with more than 15 years of experience in his field. Thriving in a passionate environment, Derren finds motivation in intellectual challenges and exploring diverse ideas within his writing.