Many investors are often drawn to the stocks with high headline yields, but this is a risky business: just because a company is one of the highest-paying firms out there, does not mean it will be able to see you through the long-term.
Even some of the biggest companies in the UK – such as Barclays and BP – have suffered significant dividend cuts from events such as the financial crisis in 2008 and the Gulf oil spill in 2010.
However, Capita Asset Services points out there are a number of companies in the UK that have kept the ship steady since before the financial crisis.
Since 2007, five of the top-15 dividend-paying companies in the UK stock market have cut their dividend, while the remaining 10 have maintained or increased their payout on a per-share basis.
Top-10 stocks that have not cut their dividend since 2007
| Company | Total per share 2007-2012 inclusive |
|---|---|
| Astrazeneca | £9.17 |
| Royal Dutch Shell Plc | £7.71 |
| British American Tobacco | £6.36 |
| Rio Tinto plc | £4.59 |
| Unilever plc | £4.36 |
| GlaxoSmithKline | £4.12 |
| BHP Billiton | £3.39 |
| Diageo | £2.50 |
| Tesco | £0.85 |
| Vodafone Group plc | £0.59 |
Source: Capita Asset Services
And, as a recent report from the firm highlights, FTSE 100 companies have more cash on their balance sheets than ever – which means they are more likely to increase dividends, pay out special dividends or opt for share buybacks – all of which bode well for income investors.
Justin Cooper (pictured), chief executive of shareholder solutions at Capita Asset Services, says some of the best income-paying stocks are in the UK, but investors should keep in mind dividend cuts can and do happen. Being selective, therefore, is the key to success in his opinion. "In the UK, management teams do their best to keep dividends growing consistently, as investors value predictable, growing income streams from their investments," he said.
"But cuts are quite common. In 2011 and 2012, around 100 companies cut the total amount they paid out in dividends, roughly one-quarter of dividend-paying firms. In 2009, when the recession was at its fiercest, more than half of firms cut their payouts."
"Investors can never be sure what is over the horizon, as even if the economy is set fair, individual firms or even whole sectors can be buffeted by freak storms and dividends then getting blown off course."
FE Trustnet highlights three of the top dividend-paying stocks that have not cut their dividend in the last six years.
AstraZeneca
The pharmaceutical giant, which is the number-one holding in FE Alpha Manager Neil Woodford’s five crown-rated Invesco Perpetual High Income fund, has been far and away one of the biggest winners from an income perspective over the last six years.
Anyone holding the stock since 2007 would have made an impressive £9.17 per share. The current share price is £32.33. The stock is currently yielding upwards of 6 per cent and has raised its dividend by more than 13 per cent over the last five years.
Since 2007, the stock has made 83.41 per cent from a total return point of view, compared with a 29.82 per cent gain from the FTSE 100.
Performance of stock vs index over 6 yrs
Source: FE Analytics
157 funds in the IMA universe hold AstraZeneca in their top-10.
Vodafone
Not only was Vodafone one of the highest-paying dividend stocks in 2012, it has also been one of the most consistent on a per-share basis.
The current share price is £2.13 and investors who held it since 2007 would have made 59p per share, more than a 25 per cent gain per share in dividends.
Obviously, the share price has varied over the last six years, but the stock has outperformed the underlying FTSE 100 index over the period, picking up 79.32 per cent.
Performance of stock vs index over 6yrs
Source: FE Analytics
The Share Centre currently rates the massive telecommunications company as a "hold" due to its recent sale of US mobile business Verizon.
"It is expected that of the $130bn sale, $64bn will go directly to shareholders. It is anticipated that shareholders should receive their pay-out sometime in March 2014," The Share Centre said.
"In light of the Verizon deal, we are recommending Vodafone as a ‘hold’ until we feel we have a clearer picture of Vodafone’s intentions with regard to future acquisitions and developing emerging market operations, and if it is likely to seek another US partner."
"Some analysts have been arguing that the slimming down of Vodafone could make it a takeover target."
The stock is a staple in many of the leading portfolios in the UK – FE Alpha Managers Richard Plackett and Francis Brooke hold it in the top-10 of BlackRock UK Special Situations and Trojan Income, respectively. Overall, 334 companies in the IMA universe have Vodafone as one of their top bets.
Rio Tinto
Mining and commodities stocks have certainly been unloved for the last several years, but Rio Tinto has held up in terms of dividends since 2007.
The firm has continued to pay out a steady or growing dividend over the last six years and investors who held the stock over this period would have made £4.59 per share.
The current share price for the firm is £31.82, just marginally higher than it was at the start of the year.
However, Rio Tinto has been more of an income play than a total return one over the last six years.
Its price fell off a cliff in 2008, shedding more than 80 per cent of its value. It is still down 2.8 per cent over the six-year period, including the financial crisis.
Performance of stock vs index over 6yrs
Source: FE Analytics
There are 242 funds in the IMA universe that hold Rio Tinto in their top-10.