Great UK shares to consider buying for passive income aren’t necessarily those offering the highest dividend yields. Personally, I prefer those companies that keep raising the amount of cash they distribute to investors every (or nearly every) year.
Why? Because dividends don’t lie — I either get them or I don’t. In other words, they’re a good indication of how a company is actually trading. Not that I’d ever accuse some management teams of being loose with the truth.
Dividend heroes
Fortunately, there are quite a few businesses that have great track records on this front. From the FTSE 100, I’d pick out Halma, BAE Systems and Bunzl. All three have managed to grow dividends for decades. At least some of this is due to operating in sectors — health and safety, defence and distribution respectively — where demand doesn’t waver all that much.
This is not to say rising payouts are nailed on. As an example, big oiler Shell was forced to cut its cash distributions back in 2020 when you-know-what pushed us indoors. This is why I like to have a good dollop of diversification in my portfolio.
Out of interest, the share prices of the aforementioned trio have also done seriously well over the long term. Imagine how even more lucrative it would have been if I’d held those shares and reinvested the payouts straight back into the companies to compound!
Another consistent hiker
But I don’t need to stick to only the biggest companies when it comes to dividends. One that I’ve taken a shine to a little further down the market is FTSE 250-listed independent technology and services provider Computacenter (LSE: CCC).
The yield here is 2.9% — pretty average for a UK-listed stock. But again, I’d rather have a smaller, growing dividend over one that’s big but not moving. And if we regard a single dropped final dividend in 2020 as a blip motivated by a very uncertain outlook, this is exactly what’s been happening.
Like those FTSE 100 beasts I mentioned earlier, Computacenter hasn’t been a slouch in delivering capital gains either, at least over the last five years. Since October 2019, the share price has almost doubled.
Fine, this isn’t another Nvidia. But I doubt those looking for companies that are growing dividends would have been looking for the chip-maker. And again, the performance gets even better if those payouts were reinvested.
Sticky patch
It’s not all rosy though. Computacenter’s shares have lost about 10% in 2024 so far, prompted by revenue and adjusted pre-tax profit falling 13.4 and 28.4%, respectively, in H1. This was partly due to the “expected normalisation of Technology Sourcing volumes against exceptionally strong comparatives“. In plain English, sales haven’t been quite as good as the same period last year.
On the flip side, this leaves the stock trading on a P/E ratio 14. That’s a little cheap for the tech sector. Management also expects stronger momentum in the second half of FY24.
Will this happen? We can’t know for sure and “softer UK market conditions” might remain. But analysts still expect the dividend to be easily covered by profit.
When I next have the money to add to my portfolio, I might well stop by here.
The post Top UK shares I’d consider buying for growing dividends appeared first on The Motley Fool UK.
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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended BAE Systems, Bunzl Plc, Halma Plc, and Nvidia. 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.
