Master Investor Magazine 19

Page 16

BY JOHN KINGHAM

THE DIVIDEND HUNTER

FIVE inflationbeating dividend stocks One of the things I like most about dividend investing is that there's a good chance the income will grow faster than inflation. Take the FTSE 100's dividend as an example. CPI inflation since 1986 has run at an annualised rate of 2.6% per year, whereas the FTSE 100's dividend has grown by an annualised rate of 4.9% over the same period. So the index's dividend has grown by 2.3% a year even after adjusting for inflation (and of course there have been substantial capital gains since 1986 as well). Passively investing in a FTSE 100 tracker is one way to access the inflation-beating nature of dividend income. However, as an active investor I prefer to pick individual dividend-paying stocks in an attempt to get a market-beating dividend yield today and market-beating dividend growth tomorrow. So with inflation in mind, this month I'm going to look at a group of companies that have raised their dividend by at least 2% (the Bank of England's inflation target) every single year since 2008. Within the FTSE All-Share there are about 50 such companies. That's too much for one article so I'll restrict the list to stocks with a yield of more than 3% and then look at the five most consistent growers:

The Restaurant Group (LON:RTN) – FTSE 250 – Travel & Leisure Share price: 385p Dividend yield: 4.5% 10-year dividend growth rate: 11.2% The Restaurant Group (which I'll call TRG) is the company behind popular themed restaurant brands such as Frankie & Benny's, Chiquito and Coast to Coast. These restaurants are located primarily in out of town leisure parks, although it has quite a few high street sites as well. The company also has a significant airport and railway concessions business. TRG has grown incredibly consistently in recent years, with revenues,

normalised earnings and dividends increasing in every single year since 2008. The company also has very little debt and a post-tax return on capital employed of almost 20%. With a dividend growth rate of more than 11% this has been one seriously successful business. However, its 4.5% dividend yield suggests that the company has some problems, and that's true. TRG's share price has fallen by about 50% from its early-2015 high and this has coincided with increasingly negative announcements from the company. In response, a new Chairman and board have taken charge and instigated a full review of the company's strategy. On the positive side the initial findings from the review suggest that recent underperformance

16 | ISSUE 19 – OCTOBER 2016 Master Investor is a registered trademark of Master Investor Limited | www.masterinvestor.co.uk


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