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Every investor has their own priorities when deciding which UK stocks to buy. Some look for rapid growth, some for high income. The latest ‘Dividend Dashboard’ from fund platform AJ Bell highlights something else to consider.
It has high praise for companies with long records of increasing dividends every year, arguing this can help drive the share price higher over time. It counted 17 FTSE 100 members with an unbroken dividend streak lasting a decade or more. Happily, two of the best are on my watchlist.
The first is London Stock Exchange Group (LSE: LSEG). Over the last decade it’s delivered a total return of 408.8%, turning £10,000 into £50,880. Dividends have risen at an average compound growth rate of 15.5% a year in that time, which is remarkable. Yet the trailing yield is just 1.51%, which is misleading.
London Stock Exchange Group slows
The group’s share price is actually down 18% over the last 12 months. It’s even down 5% over five years. My view is that it simply ran too far ahead of itself, trading on a price-to-earnings ratio of around 32 at one stage, more than double the FTSE 100 average. Investors were pricing in a lot of growth that didn’t quite come through.
First-half results, released on 31 July, looked good to me. Adjusted earnings per share rose 20.1% to 208.9p. The interim dividend was lifted 14.6% to 47p. Management also launched a £1bn share buyback.
The shares still look a little pricey, trading at a P/E of 23.5. There are also questions over how artificial intelligence (AI) might affect demand for its data products, by reducing headcounts at City terminals. Yet the world increasingly runs on data and I still like the long-term outlook, which is why I bought the stock last week. After reading the AJ Bell report, I’ll consider buying more.
The second big winner is Intermediate Capital Group (LSE: ICP). Its 10-year total return of 404% is a whisker behind LSEG, turning £10k into £50,400. Its dividends have grown at an average of 14.2% a year, which is excellent. The shares have had a wobble recently, dropping 3.6% in the last year, but are up 78% over five years.
The stock looks cheaper than LSEG with a P/E of 14.25 and has a higher trailing yield of 3.68%. It would be higher still if the share price hadn’t done so well.
Q2 results on 16 July showed assets under management rose 8.2% to $122.57bn. Fee-earning assets climbed 11% year-on-year to $82.19bn, while fundraising hit $3.4bn.
Progressive dividend policies
There are risks. Private equity groups like Intermediate Capital Group rely on selling successful assets for profits, and the pool of buyers has shrunk lately. Smaller companies have also been hit by higher interest rates, which push up the cost of capital while inflation eats into potential future returns.
That said, the group’s long-term record is compelling. I’ve got some cash to invest in case the market dips in September and October, and I will seriously consider buying this stock if it does. I’ve waited long enough.
The AJ Bell research underlines an important lesson. A progressive dividend policy can be more valuable than a high but unreliable yield, over the longer run.
