Three stocks to buy for consistent dividend growth

Professional investor Sam Morse, portfolio of the Fidelity European Trust, selects three attractively valued stocks that should provide dividend growth over the next few years.

Our investment philosophy is shaped by the belief that long-term returns will be driven by the fundamental business performance of the companies we own. We therefore aim to look beyond the economic and political noise and concentrate on the real-life fundamentals of the listed businesses we invest in. As a market, Europe is large, international and diverse, meaning it offers us plenty of opportunities.

Our focus is on finding companies we believe can grow their dividends consistently, irrespective of the prevailing economic conditions. History shows us that this characteristic is a marker of quality that can help to identify stocks likely to outperform the market, so most of our time is spent looking at individual businesses. 

However, we also keep one eye on the wider market because we want to maintain a balanced portfolio across sectors and by size of company. So despite the uncertain economic backdrop, a result of the Covid-19 pandemic, the rollout of vaccines and the finer details of Brexit, the portfolio remains balanced in terms of exposure to different industries and our focus is still on finding attractively valued companies with good prospects for cash generation and dividend growth over three to five years.

The world’s biggest food business

Nestlé (Zurich: NESN) is the largest holding in the portfolio and a long-standing investment. As the world’s largest food business, Nestlé has a strong strategic position in its markets and operates in several categories where there is both strong growth and high emotional engagement, such as pet care. Nestlé has a robust balance sheet, offers attractive high single-digit earnings growth and has a consistent record of paying attractive dividends to shareholders. Looking ahead we see further opportunities for the business to expand its core offerings, while management can pursue efficiencies and divest lower-value businesses.

A one-stop shop for global growth

Prosus (Amsterdam: PRX) is a relatively new name for the trust, but is a stock we have monitored for some time. Prosus is a holding company with major investments in some of the world’s leading online consumer franchises. This is an interesting business that offers European investors access to structural-growth themes we see more prominently in other markets: Europe generally lacks the technology leaders we see in the US and China. 

Prosus is well positioned to benefit from the accelerating trend towards online activity the Covid-19 pandemic has caused, with the growth in e-gaming and e-commerce unlikely to subside to pre-pandemic levels as economies reopen. 

The company has a very strong balance sheet. Since its initial public offering in 2019, Prosus has traded at a huge discount to the listed companies it invests in. It also pays an attractive dividend.

Another stock we like is Enel (Milan: ENEL), an integrated electricity utility operating in generation and distribution across Italy, Spain and Latin America. We see Enel as particularly well placed to benefit from the move towards renewables, both directly and through its many subsidiaries. As a utility, Enel offers an attractive yield and a dividend that will grow as the firm expands its contracted solar and on-shore wind power generation capabilities. 

Recommended

Why we should scrap the Budget
Budget

Why we should scrap the Budget

The yearly Budget, big set-piece of British politics, encourages the very worst from the government, says Matthew Lynn.
24 Oct 2021
The charts that matter: bond yields turn back up and a new bitcoin record
Global Economy

The charts that matter: bond yields turn back up and a new bitcoin record

Bitcoin hit a new all-time high, while government bond yields turned back up. Here’s how that has affected the charts that matter most to the global e…
23 Oct 2021
Larry Fink: the undisputed king of Wall Street
People

Larry Fink: the undisputed king of Wall Street

Larry Fink survived two big financial crises and went on to build a massive asset manager, doing for investing what Henry Ford did for cars. He has hi…
23 Oct 2021
Cryptocurrency roundup: bitcoin hits a new record high
Bitcoin & crypto

Cryptocurrency roundup: bitcoin hits a new record high

In the week when bitcoin hit a new high, we look at what’s been going on in the world of cryptocurrencies this week.
22 Oct 2021

Most Popular

Properties for sale for around £1m
Houses for sale

Properties for sale for around £1m

From a stone-built farmhouse in the Snowdonia National Park, to a Victorian terraced house close to London’s Regent’s Canal, eight of the best propert…
15 Oct 2021
How to invest as we move to a hydrogen economy
Energy

How to invest as we move to a hydrogen economy

The government has started to roll out its plans for switching us over from fossil fuels to hydrogen and renewable energy. Should investors buy in? St…
8 Oct 2021
How to invest in SMRs – the future of green energy
Energy

How to invest in SMRs – the future of green energy

The UK’s electricity supply needs to be more robust for days when the wind doesn’t blow. We need nuclear power, says Dominic Frisby. And the future of…
6 Oct 2021