According to a recent report from AJ Bell, there are only 26 companies in the FTSE 100 that have increased dividends every year over the past decade. Defence contractor BAE Systems (LSE: BA) is one of these select few. BAE's ability to maintain dividend payouts in the lean years following the wind down of the Iraq and Afghanistan wars is a testament to the stable revenue the company's large projects bring in and tonprudent balance sheet management. Now that defence spending in the US, UK and Saudi Arabia, BAE's three largest customers, is picking up again, the company should be in good shape going forward.
The dividend currently yields 4.3% and is forecast by analysts to increase slightly over the next two years. Last years earnings were also enough to cover the dividend 1.9 times, showing it's in no danger of being slashed anytime soon. Although the company isn't expected to grow significantly in the future, especially given the cyclical nature of the industry, a safe 4%-plus dividend shouldn't be scoffed at.
Insurer Prudential (LSE: PRU) has largely flown under the radar as an income share as commentators fixate on its exposure to Asian markets, in particular China. However, the company's shareholders currently enjoy a 2.9% yielding dividend, and payouts are forecast to increase 8% this year and 10% in 2017. Despite the recent slowdown in China, new business profits rose a full 22% in Asia over the past three months. Prudential's ability to grow the business despite volatile markets underlines the company's long-term potential in a region clamouring for insurance products and asset management.
A conservative approach to dividends, which were covered 3.4 times by earnings last year, should also ensure that there are no surprise cuts in the future. And, unlike BAE, Prudential shares do offer shareholders significant growth potential in the years ahead as one of the leading insurers in Asia.
Few investors would buy shares of Shire (LSE: SHP) solely for the income but the company's decade of growing dividends shouldn't be ignored. This is because its record of increasing payouts shows the stability of the pharma giant's business year in and year out. The cash cow that has helped provide five years running of increased revenue is ADHD treatment Vyvanse, which continues to astound by increasing sales 22% in the past quarter alone.
Shire isn't solely relying on these ADHD treatments though and is rapidly expanding into the high-margin rare disease treatment sector. This has entailed spending over $40bn in deals completed or announced last year alone in order to expand the company's pipeline. Shire has called a halt to these acquisitions for the time being and will concentrate on turning an enviable pipeline into new blockbuster drugs. While this is a high-risk process, the high margins to be found in developing drugs for rare diseases mean Shire only needs a handful of winners to keep shareholders happy for another decade.
Shire increasing dividends by 75% over the past five years is impressive, but the Motley Fool's Top Income Share has outdone the pharma giant by increasing its own dividend 380% in that time.
And with earnings covering this substantial dividend 3.5 times, there's plenty of room for shareholder payouts to keep growing.
To discover this income star for yourself, simply follow this link for your free, no obligation copy of the report.
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.