Insurance provider Aviva (LSE: AV) disappointed income investors by slashing dividends three years ago during a dramatic reorganisation. But with its turnaround beginning to bear fruit, analysts are expecting Aviva's dividend to yield a whopping 5.6% in 2016 and be covered two times over by earnings.
Dividends are rising as cost-cutting related to the £6bn acquisition of competitor Friends Life happens ahead of schedule and the core UK life insurance business returned a 20% increase in operating profits at year end 2015. International expansion is also showing signs of a turnaround as each major market reported increased sales on a constant currency basis.
Looking forward, the one time bump to operating profits from the Friends Life acquisition won't be repeated, but Aviva's underlying business still increased operating profits by £103m last year. The growing asset management arm also increased organic operating profits by 21% to £96m. If these underlying businesses continue to grow, currency headwinds subside, and the Friends Life integration goes to plan, the new dividend payout policy of half of earnings should serve investors well.
High income potential
Despite the twin setbacks of falling platinum prices and the Volkswagen emission cheating scandal, Johnson Matthey's (LSE: JMAT) dividend is still safe and growing. Analysts are expecting this year's dividend to yield 2.5%, below the FTSE 100 average, but covered more than 2.4 times by earnings. Additionally, shareholders were treated to a special 150p payout on top of their interim 19.5p in January due to the disposal of non-core assets.
While Johnson Matthey's dividend yield may not be massive, the safety of high dividend cover shouldn't be ignored, as shareholders of Glencore and Standard Chartered will attest. Furthermore, despite the bad knock diesel engines took after the Volkswagen scandal broke, sales in the company's core emission control division still rose 6% over the past quarter. Investments in new battery technologies are also going well as revenue from the new businesses division doubled year-on-year. This diversification shows the company is adapting to a changing energy environment and will be an interesting segment to watch in the coming years. It may not be the most exciting business, but steadily growing dividends and a forward-looking management team make me confident Johnson Matthey's income potential is quite high.
Slow and steady
Despite volatile global equity markets, asset manager Schroder's (LSE: SDR) has continued to hum along nicely. The fund manager's Q1 pre-tax profits may have dropped from £141m to £137m year-on-year, but in such volatile market conditions investors should applaud the company's ability to continue attracting net inflows of £2.7bn. Slow and steady growth from this family-controlled company is why dividends have grown year after year and are expected to yield 3.6% in 2016.
Analysts are expecting this year's dividend to be covered 1.9 times by earnings, showing its safety and growth potential. And, while earnings are expected to shrink this year alongside the general industry pullback, Schroders still has significant growth potential in the years ahead. The company's popularity with institutional investors has protected it from much of the downside of recent market turbulence, and it should benefit nicely in the coming quarters as January's tumult is behind us.
These three companies have impressive recent histories with dividend hikes, but they can't compare to the 380% rise over the past four years at the Motley Fool's Top Income Share.
This truly under the radar income star's dividends are still covered more than 3.5 times by earnings too, which is why analysts are expecting even more growth to come.
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Ian Pierce has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.