How Do These Ftse 100 Stocks Keep Paying Brilliant Dividends?

The FTSE 100 is home to a huge range of heroic dividend stocks. We’re talking high-yielders with strong records of delivering large, market-beating payout, and shares with consistent dividend growth that help investors keep up with (or even beat) inflation.

Here I want to talk about three specifically, and what makes them such formidable passive income providers. The names in question are BAE Systems (LSE:BA.), Standard Life (LSE:SDLF), and Seven Trent (LSE:SVT).

Let’s take a look.

Dividend quality

Each of these firms enjoys strengths that make them perfect dividend powerhouses. With BAE Systems, these factors include:

• A focus on defence, where long-term demand remains stable.
• Tier 1 supplier status with huge defence spenders (including the US and UK).
• Huge barriers to entry, which limits competitive threats.
• A diverse product range, protecting profits from slowdown in one or two areas.
• Growing geopolitical uncertainty, which is driving global defence budgets.

Standard Life has its own distinct set of advantages, such as:

• Capital-light operations and a focus on acquiring ‘closed’ life insurance and pension policies.
• Predicable cash generation from in-force policies and investment returns.
• Asset portfolios that are tightly hedged against interest rate moves.
• Robust capital reserves (its Solvency II ratio today is 176%)
• Strong growth in the retirement and savings markets.

Great records

Severn Trent, meanwhile, benefits from:

• Operating in an ultra-defensive industry (water supply).
• A monopoly in the Midlands region of the UK, eliminating competitive dangers.
• Multi-year regulatory periods that provide long-term earnings visibility.
• A strong record of operational efficiency, limiting costs.
• A growing asset base that leads to increased dividends.

So how have these qualities translated into dividends down the years? Let’s take a look.

Over the past decade, dividend yields have beaten — or been at the upper end of — the FTSE 100 average of 3%-4%. Standard Life’s yield has delivered a yield roughly double that level.

These FTSE stocks have also navigated major shocks to keep growing their dividends. During the Covid pandemic, for instance, they continued raising payouts, a period when roughly half of Footsie companies experienced some disruption.

Can they keep delivering?

But here’s the thing. Past dividend performance isn’t always a reliable guide to future. With BAE Systems, earnings could suffer if defence-related supply chain issues worsen, impacting dividend growth.

Rising competition in pensions and annuities might hit Standard Life’s future payouts. And as for Severn Trent? The company’s profits could take a hit if interest rates rise and borrowing costs shoot up.

However, no share is without risk. And on balance, I fully expect these FTSE 100 stocks to keep offering excellent dividend yields and payout growth. Their resilient business models and strong cash generation make them excellent income shares to consider.

The post How do these FTSE 100 stocks keep paying brilliant dividends? appeared first on The Motley Fool UK.

More reading

• What are the FTSEâs most lucrative high-yield shares?
• How much do you need in an ISA to aim for a £2,613 monthly second income
• Hereâs how investors could make £1,654 a month in retirement from just £20,000 in Standard Life shares
• 3 FTSE 100 stocks I’m considering for growth, value AND dividends!
• Down 14% to just under £21, is now exactly the right time for me to buy more BAE Systems shares?

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended BAE Systems. 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.