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Countless investors are seeking an investment portfolio that strikes a harmonious balance between growth, income, and security. In this series, we’ll explore stocks that meet specific dividend criteria.
What are UK Dividend Aristocrats?
The eligibility of dividend aristocrat status for the UK is a much lower threshold than its US counterpart, here is the SP Global requirement eligibility for UK UK Dividend Aristocrats:
To be considered a part of the S&P UK High Yield UK Dividend Aristocrats index, a company must meet certain requirements during the index’s rebalancing. First, the company needs to be listed on the London Stock Exchange in British pounds and should be a constituent of the S&P United Kingdom BMI.
In addition to that, the company must have a strong history of paying dividends. This means they should have either increased their dividends or kept them stable for at least seven consecutive years. The analysis looks at the calendar years and ex-dividend dates, with the year ending in May.
Financially, the company should have a maximum dividend payout ratio of 100% for new members, and existing members should have a non-negative dividend payout ratio. A dividend payout ratio is considered negative when the company’s annual Earnings Per Share (EPS) is negative.
Furthermore, the company’s indicated dividend yield should not exceed 10% on the rebalancing reference date.
Why Invest in UK Dividend Aristocrats, and What Are the Benefits?
- UK Dividend Aristocrats are renowned for their ability to generate a consistent and reliable source of income. For income-focused investors, this is a paramount advantage. The regular dividend payments can supplement other income sources, making them especially appealing to retirees or those seeking steady cash flow.
- Unlike relying solely on capital gains, which can be unpredictable and market-dependent, dividends offer a more dependable stream of income. Investors can count on these payments as a source of financial support, helping to cover living expenses, reinvest in the market, or simply enjoy a more secure financial position.
Long-Term Growth Potential:
- Beyond providing income, UK Dividend Aristocrats often exhibit long-term growth potential. These companies have a proven track record of success and stability. Their ability to consistently grow dividends over 25 years or more indicates financial strength and management quality.
- As such, investors can benefit not only from the income but also from potential capital appreciation. These companies are well-positioned for growth in the long run, which can lead to an increase in the stock’s value over time. This dual benefit provides investors with a means to achieve both income and wealth accumulation.
- The historical trend of increasing dividends suggests financial stability and resilience. Companies that can weather economic downturns and still increase payouts are often better equipped to face challenges. This resilience translates to lower investment risk.
- In times of market volatility or economic uncertainty, UK Dividend Aristocrats can act as a safe haven within a portfolio. The dependable income stream and a track record of consistency can provide a sense of security for investors, reducing anxiety during turbulent market conditions.
In conclusion, investing in UK Dividend Aristocrats offers a comprehensive set of benefits for investors. They provide a dependable source of income, the potential for long-term growth, risk mitigation, and an opportunity to enhance portfolio diversification. These benefits make UK Dividend Aristocrats a prestigious and well-rounded option for those seeking a balanced and reliable investment strategy.
How did I build this portfolio?
Creating a successful dividend challengers portfolio involves a structured approach that can help you maximize the benefits of these promising investment opportunities. Here are the key steps I considered to build this little template portfolio of UK dividend aristocrats framed in a way that can help you if you want to make your own:
- Identify and Research: Begin by identifying potential Dividend Aristocrats in the UK market. Look for publicly traded companies with an established track record of raising dividends for 7 or more consecutive years. Online stock screeners, financial reports, and investment news can be valuable resources.
- Historical Dividend Increases: Examine the history of dividend increases for each company. The longer the streak, the better. Analysing financial statements, earnings reports, and management discussions can help you assess their ability to maintain consistent dividend growth.
- Financial Health: Evaluate the financial health of the companies you’re considering. Key financial metrics, such as the debt-to-equity ratio, cash flow, and dividend payout ratio, can help you determine if the company can sustain its dividend growth.
- Spread The Investments around different sectors and industries: Diversification is a fundamental strategy for managing risk. By spreading your investments across various sectors and industries, you reduce your vulnerability to sector-specific market fluctuations.
- Risk Mitigation: The diverse nature of your holdings ensures that even if one industry experiences a downturn, your portfolio’s performance won’t be overly affected. This safeguards your investments and maintains a degree of stability in your portfolio.
Ok, let’s see the stocks!
SN.L – Smith & Nephew plc
Smith & Nephew plc and its subsidiaries are global leaders in creating and selling medical devices and services. They focus on three main areas: Orthopaedics, Sports Medicine & ENT, and Advanced Wound Management. Their offerings include knee and hip implants, sports medicine equipment, advanced wound care products, and regenerative medicine items. Established in 1856, the company is headquartered in Watford, UK, and serves healthcare providers worldwide.
BA.L – BAE Systems plc
BAE Systems plc is a global leader in defense, aerospace, and security solutions, organized into five key segments: Electronic Systems, Cyber & Intelligence, Platforms & Services (US), Air, and Maritime. They offer electronic and communication systems, cybersecurity, combat vehicles, aircraft, and naval systems. Founded in 1970 and headquartered in Farnborough, UK, they serve national security and defense agencies worldwide.
DRX.L – Drax Group plc
Drax Group plc is a UK-based renewable power generation company with three key segments: Pellet Production, Generation, and Customers. They produce biomass pellets, supply renewable power to the grid, and provide electricity and gas to non-domestic customers. Drax operates power stations such as Drax Power Station and Cruachan Power Station, as well as hydro-electric stations. Additionally, they process sludge into low-odor fuel pellets and produce wood pellets. Established in 2005, the company is headquartered in Selby, UK.
ULVR – Unilever plc
Unilever PLC is a global consumer goods giant known for its diverse segments: Beauty & Wellbeing, Personal Care, Home Care, Nutrition, and Ice Cream. Their offerings span hair care, skincare, oral care, soap, fabric care, and hygiene products. Unilever’s impressive brand portfolio includes Dove, Lipton, and Hellmann’s. Established in 1860, the company is headquartered in London, UK.
BYG.L – Big Yellow Group Plc
Big Yellow is a top self-storage company in the UK with 108 stores, including 24 branded as Armadillo Self Storage. They’re planning 11 more Big Yellow facilities, totaling 0.9 million sq ft of space, adding to their existing 6.3 million sq ft. Their modern, well-located facilities, excellent customer service, and sustainability efforts make them a standout name in the UK self-storage industry.
NG.L – National Grid Plc
National Grid is a company specializing in electricity and gas transmission and distribution. They operate in the UK, handling electricity transmission, distribution, and supply-demand balance, as well as providing services in New England and New York in the United States. They’re involved in electricity interconnectors, LNG importation, renewable energy projects, and property leasing and sales, along with insurance activities in the UK. The company was founded in 1990 and is headquartered in London, UK.
LGEN – Legal & General Group Plc
Legal & General Group is a London-based insurance company with a wide range of services, including annuities, investment management, investment strategy, protection products, savings, mortgages, real estate, and more. Their diverse offerings cater to various segments and have been established since 1836.
BATS.L – British American Tobacco plc
British American Tobacco is a global company based in London, UK, with a history dating to 1902. They provide a variety of tobacco and nicotine products, encompassing vapor, heated tobacco, modern oral nicotine products, cigarettes, and oral snuff. Their brands, such as Vuse, Kent, Lucky Strike, Pall Mall, Camel, and more, are distributed through retail outlets worldwide.
IGG.L – IG Group Holdings plc
IG Group Holdings, headquartered in London, UK, and founded in 1974, is a global fintech company focused on online trading. Their services include over-the-counter derivatives, such as Contracts For Difference (CFD), stock trading, investment services, educational content, and exchange-traded derivatives through brands like Tastytrade and Spectrum. They provide traders with risk-mitigation tools and various other financial services.
CRDA.L – Croda International Plc
Croda International Plc, headquartered in Goole, UK, has been in operation since 1925, engaging in fragrances, flavors, and seed enhancement globally. They operate through three main segments: Consumer Care, offering fabric care, cleaning, air care, personal care, and home care products; Life Sciences, specializing in drug delivery systems; and Industrial Specialties, providing solutions for crop quality and seed enhancement.
EXPN.L – Experian plc
Experian plc, a global technology company founded in 1826 and headquartered in Dublin, Ireland, operates in two main segments: Business-to-Business and Consumer Services. They specialize in data-driven services, including credit risk assessment, fraud prevention, and identity management, serving various industries. They also provide consumer services like credit education and free credit reports.
DGE.L – Diageo plc
Diageo plc is a global leader in alcoholic beverage production, marketing, and sales. They offer a variety of alcoholic drinks and non-alcoholic products, including well-known brands like Johnnie Walker, Guinness, and Smirnoff. Established in 1886, the company is headquartered in London, UK.
So those are the stocks in the portfolio, let’s see what it looks like when we put them all together!
I decided to market weight the portfolios, this will probably be the biggest question asked when it lands on the Trading 212 pie library as the allocations might look a little bit weird.
Because the classifiers are only based on the number of years of dividend growth it makes for an unusual mismatch of company sizes.
Therefore, in my opinion, it makes more sense to market weight the stocks in the pie rather than equally weight the tiny ones with the huge mega caps.
This obviously took more time to do it this way but it means that the investment won’t be overwhelmed by movements in the smaller-cap stocks
For the Dividend Challengers here is what the pie looks like:
And for those who will inevitably ask, here is the yield, at the time of making the video at least.
Remember yield changes a little every time the market opens.
At the time of making the pie, the yield was 4.7%
If you want to see this pie in real life then you can follow the link here.
Finally, as I know this will get asked, will I be maintaining this pie?
Obviously, as I have said before these pies take a lot of hard work to create and maintain, if you are taking it seriously so I will be maintaining the pies in this series as long as there is significant support from the community.
Unfortunately, if only a small number of people support the pie, i am better off focusing on things you like more.
You should see this pie as more of an example of a certain type of dividend-paying stock rather than a comprehensive portfolio for you to invest in!
Check out the other videos in the series and guess which one will perform the best!