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I look for two key things in a FTSE 100 dividend stock — a decent yield, and a track record of dividend growth.
Very high dividends come along from time to time. But over the long term, a steady progressive one can really help build superior wealth.
30 straight years
How does a 4.3% dividend yield sound? And what if it the figure has increased every year since stock market flotation in 1994?
I’m talking about DCC (LSE: DCC), the sales, marketing and support services group. It’s operated in oil markets, technology, healthcare, retail… and the diversification has helped smooth single-sector tough spells in the past.
But that’s changing, with the company in the middle of a transformation.
Focus on energy
In the words of CEO Donal Murphy in July’s AGM statement: “Our ambition is to be a global leader in the sales, marketing and distribution of energy products and services.” The company had, at the time, “reached agreement for the sale of DCC Healthcare.”
The question is whether the energy division will be able to generate the cash to keep that long-term dividend growth going. Right now, there seems to be plenty of cash, as DCC started a £100m share buyback in May. And it plans to return £600m to shareholders when the DCC Healthcare disposal completes.
DCC Energy does make up the bulk of the company’s business, so I think the potential is there. But there’s danger in these refocus days, and it might be a while before we see the shape of the result.
We’ll see your 30 years…
Croda (LSE: CRDA) has beaten DCC, with 34 annual dividend rises in a row. And the speciality chemicals maker currently offers a forecast 4.4% yield. The share price has had a tough time since 2022, however.
Croda’s earnings went into decline when it lost its Covid boost. Before then, its products had been in great demand for vaccines, medications, and related products.
Forecasts indicate an end to an earnings per share decline with a modest uptick this year… before steady growth sets back in. The key thing for me is that dividend rises continued during these past few years. And, perhaps crucially, earnings have managed to cover them, even if thinly. But cover should be rising again.
Interim boost
First-half results posted in July showed a 7.6% increase in adjusted EBITDA. The only worrying thing I saw was a 72% decline in free cash flow. And cash is vitally important for dividends. But at least the interim dividend was lifted, by 2.1%.
CEO Steve Foots said: “We have identified a further £60m of cost savings, taking the total to £100m of annualised savings by the end of 2027.” That should help the prospects for future dividends.
We have two very different companies here, both pursuing refocus and recovery. I view their chances of coming through their respective challenges with optimism. And I think income investors who believe they’ll retain their dividend focus should consider both.
