As inflation sits at its highest level in decades, I have been looking for UK shares to buy now for my portfolio that might offer me the chance of growing passive income streams. Here are seven such shares I think could increase their dividends in coming years.
Increasing income could be worth raising a glass to celebrate. When people do that, with drinks from Guinness to Baileys, it helps boost sales at drinks giant Diageo (LSE: DGE).
The company behind many famous names on bar shelves around the world has an attractive record when it comes to boosting dividends. It has done that each year for over three decades. What helps fund this growth? Partly it is the attractive profit margins of the alcoholic beverage industry. But I think Diageo’s careful management and development of a range of premium brands also helps its profitability.
Whether that can continue depends partly on customers being willing to pay for a premium tipple. One risk is a decline in alcohol consumption in some markets, although Diageo is trying to combat that by extending its non-alcoholic offering. I think the firm’s brand portfolio and global reach could be good for future profits – and hopefully dividends too.
Another consistent dividend grower is DCC (LSE: DCC). The company operates in a variety of businesses including gas distribution.
The dividend has long been a high priority for DCC management. The company has raised its dividend annually for over a quarter of a century. Those rises have been sizeable, with double-digit percentage increases in each of the past couple of years. Currently the yield is 3.1%.
What does the future hold for the dividend? A decline in the use of bottled gas in some markets could hurt both revenues and profits at the firm. But I think its range of businesses helps give it a diversity of income sources. I like the importance DCC attaches to its dividend and would consider buying it for my portfolio.
British American Tobacco
Another company that has raised its dividends annually for decades is British American Tobacco (LSE: BATS).
Lately the increases have been small and the company has started using some of its excess cash to buy back its own shares. But although the growth rate may have slowed, I see ongoing potential for dividend increases at British American. It is a highly cash generative business.
A risk I would consider here is a declining number of cigarette smokers leading to falls in both sales and earnings. The company is developing non-cigarette product ranges, but so far their profitability looks much less attractive than that of cigarettes. For now at least, there is still enough demand for cigarettes to help support a growing dividend. I see British American among the UK shares to buy now for my portfolio.
Judges Scientific (LSE: JDG) manufactures specialist equipment like microscopes. But no such device is needed to measure recent increases in its dividend, as they have been large. Last year, the dividend grew by 20% compared to the prior year. Indeed, the dividend has more than doubled over the past four years.
One risk to the company is ongoing delays in getting access to some sites for installations in markets where pandemic restrictions remain in place. That could hurt sales and profits. I would also like it if Judges had a higher yield – at the moment, it stands at just 0.8%. If my focus was not on yield but on prospects for ongoing dividend growth, though, Judges Scientific would make the list of shares to buy for my portfolio.
Legal & General
With a 7% yield, adding Legal & General to my portfolio could provide a juicy boost to my passive income streams. But I also think the insurer could be a good choice for me when it comes to dividend growth. It has already set out its plans to grow the dividend annually over the next several years.
No dividend is ever guaranteed, of course, and the financial services firm does face risks. For example, changed rules on renewal pricing for insurance policies threatens to dent profits. But I think there is a lot to like about the Legal & General investment case. Its strong brand, large customer base and deep experience could help the company do well in the future.
Meat producer Cranswick (LSE: CWK) may not be a household name, but its products are stocked under a variety of names in many thousands of shops.
Cranswick has spent decades developing its product range. So it is not simply a meat supplier charging commodity prices. Through its processed products, it is able to charge premium prices. That can be good for profits – and dividends.
Indeed, in its preliminary results yesterday, the company announced that it had maintained its operating margin at 7%. I was pleased to see that, as disruption in the meat supply chain is an ongoing threat to profitability. Earnings per share increased by 11%.
The company also announced an 8% increase in its dividend. This is the 32nd consecutive year of dividend increases. I think the company’s strong business prospects bode well for future growth. That is why Cranswick is on my buy list of UK shares.
The final name on my list of seven shares to buy is Unilever.
Inflation could push up costs at the consumer goods giant. But that is where I think it can benefit from its portfolio of premium brands, such as Dove, giving it pricing power. Evidence of that came in its first-quarter results. Sales volumes slipped slightly, but revenues grew due to price increases.
Unilever pays quarterly dividends. I think its large, diversified business should provide robust revenues in the next few years even in the face of an economic slowdown. That should help it support dividend increases.
No dividend is ever guaranteed. But by spreading my investment over seven different companies in a diverse range of business sectors, I would hopefully see at least some of them raise their dividends in coming years. That is why I would buy them now.
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Christopher Ruane owns shares in British American Tobacco and Unilever. The Motley Fool UK has recommended British American Tobacco, Diageo, Judges Scientific, and Unilever. 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.