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One of the things I like about a Self-Invested Personal Pension, or SIPP, is how naturally it lends itself to a long-term approach to investing.
When it comes to compounding the dividend income from shares, that can be attractive in my view. Even better if there is dividend growth to boot!
Here are three British dividend shares with strong records of regular dividend growth. Although that is not necessarily an indicator of what may happen (dividends are never guaranteed, after all), I still reckon that their future prospects mean this trio merits SIPP investors’ consideration.
British American Tobacco
The cigarette maker British American Tobacco (LSE: BATS) is one of a small number of blue-chip FTSE 100 shares that have grown their dividend per share annually for decades.
That makes sense: cigarettes are cheap to make and can command a high price thanks to a captive market.
With limited opportunities to invest for growth in a shrinking market and ethical concerns keeping some investors away from the death stick maker, the company’s management has prioritised dividend growth. It plans to keep doing so.
Will it succeed?
Cigarette sales volumes are declining. British American has pricing power thanks to its premium brands, but that may only partly mitigate the impact of falling sales volumes.
Still, the company remains highly cash generative. Non-cigarette product formats like pouches could also help it expand its revenue base. The yield is 6.1%.
City of London Investment Trust
Will England win the World Cup this year?
The last time that happened, in 1966, City of London Investment Trust (LSE: CTY) grew its dividend per share – and it has done so annually ever since.
The FTSE 250 investment trust has roots stretching back more than a century before Bobby Moore captained his men to victory. Despite those regular dividend increases, the yield is still an attractive 4%. That compares to 3.5% for the index overall.
The share sells at a slight premium to its net asset value. The portfolio is focused on large British companies, something I see as good and bad.
It is good because it means the trust ought, in broad terms, to perform roughly in line with the FTSE 100, unless the trust managers make some bad asset allocation choices. In the past five years, the index moved up 46% and the City of London share price grew 40%.
The downside of the UK focus is the weak economic outlook for Britain. That risks acting as a drag on the share’s medium-term performance.
Bunzl
Is catering and janitorial supplies wholesaler Bunzl (LSE: BNZL) a proven operator that will overcome a rough trading patch and continue its decades-long record of annual dividend per share growth?
Or does the 38% fall in the Bunzl share price over the past year suggest that the former growth share could keep struggling with supply chain inflation, higher staff costs in some markets, and keen price competition eating into profit margins?
I have bought the share for my SIPP because I am in the former camp. Time will tell if I am right!
Bunzl remains solidly profitable, has a large customer base, and continues to hunt for acquisitions that can help its long-term growth.
The price-to-earnings ratio of 14 looks attractive to me, along with the 3.7% yield.
