ISA cash accounts pay such low interest rates that it’s unlikely I’d be able to compound my money in them sufficiently to save enough for my retirement. Instead, I think investing on the stock market is more attractive and I can compound gains from dividend income and rising share prices.
Here are three FTSE 100 dividend-growing stocks I’d add to a diversified portfolio:
Fast-moving consumer goods Unilever (LSE: LON:ULVR) makes fast-moving consumer goods in the areas of food, home care and personal care and owns brands such as Dove, Comfort, Domestos, Hellman’s, Magnum, Sure, Radox and many others.
Generally, I’m keen on firms that peddle fast-moving consumer goods backed with well-known and successful brands because customers can be loyal, which often leads to a high level of repeat-purchasing. The product is used up by customers on a frequent basis, which means incoming cash flow can be reliable and predictable – ideal for building on to fuel a progressive dividend policy.
Over the past five years, the dividend has risen by just over 45% and at today’s share price close to 4,800p, the forward-looking dividend yield for 2019 is just over 3%. In April, the company reported that trading was off to a “solid” start for the year. I think the stock would make a decent core holding for my portfolio.
Quality assurance services Intertek Group (LON:ITRK) (LSE: ITRK) describes itself as a “total quality assurance provider to industries worldwide.” Trading has been good with earnings and cash inflow generally rising, and over the past five years, the dividend has advanced by more than 115%.
In May, the company reported a “good” start to the year with “robust” growth in revenue of 5.3% in the first four months of the trading year. Meanwhile, City analysts following the firm’s fortunes expect mid-single-digit advances in earnings this year and in 2020.
With the share price near 5,280p, the forward-looking dividend yield for 2019 is just under 2% and the earnings multiple is around 25. The valuation seems full, but Intertek strikes me as a quality outfit generating dependable cash flow, which is ideal for powering the progressive dividend policy. I think the firm has earned its high rating and I’d be tempted to buy some of the shares on dips and down-days.
Premium drinks Diageo (LON:DGE) (LSE: DGE) produces alcoholic beverages and sells them around the world. Some powerful brands back the firm’s offering such as Bell’s, Gordon’s, Captain Morgan, Baileys, Smirnoff and Guinness. Such products fall into the category of fast-moving consumer goods and Diageo is known for its consistent cash inflows.
The dividend has risen by around 35% over the past five years. With the share price close to 3,318p, the forward-looking dividend yield for the current trading year to June 2019 sits just over 2% and the price-to-earnings rating is running just below 26. That’s not a low valuation, but the firm’s evergreen and steady performance justifies the rating, in my view.
The outlook is positive and City analysts following the firm expect earnings to grow by high single-digit percentages this trading year and next. I’d be keen to make the stock a core holding in my portfolio and would look for weakness in the stock market as an opportunity to pounce on the shares.
Kevin Godbold has no position in any share mentioned. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended Diageo and Intertek. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019