Top UK Stocks I’d Consider Buying for Growing Dividends

Great UK stocks to consider buying for passive income are not necessarily those offering the highest dividend yields. Personally, I prefer companies that keep breeding the amount of cash they distribute to investors every (or almost every) year.

For what? Because dividends don’t lie: I either receive them or I don’t. In other words, they’re a good indication of how a company is actually trading. I would never accuse certain management teams of not knowing the truth.

Dividend Hero

Fortunately, many companies have excellent results in this area. From the FTSE100I would choose Halma, BAE Systems And Bunzl. All three have managed to grow their dividends for decades. This is at least partly explained by the fact that it operates in sectors – respectively health and security, defense and distribution – where demand is not weakening that much.

This does not mean that the increase in payments is planned. For example, the large oil tanker Shell was forced to reduce its cash distributions in 2020 when you know what drove us in. This is why I like to have a good dollop of diversification in my portfolio.

Of interest, the stock prices of the aforementioned trio have also performed very well over the long term. Imagine how much more lucrative it would have been if I had held these shares and reinvested payments directly returned to companies to accumulate!

Another constant hiker

But I don’t need to stick only to the biggest companies when it comes to dividends. The one I enjoyed a little further down the market is FTSE250-independent, publicly traded technology and services provider Computing center (LSE: CCC).

The yield here is 2.9%, which is pretty average for a UK-listed stock. But again, I’d rather have a smaller, growing dividend than a large but immobile dividend. And if we consider the one-time final dividend cut in 2020 as an incident driven by a very uncertain outlook, that’s exactly what’s happening.

Like the FTSE 100 beasts I mentioned earlier, Computacenter has also been no slouch when it comes to generating capital gains, at least over the past five years. Since October 2019, the stock price has almost doubled.

Very good, it’s not another Nvidia. But I doubt those looking for companies with growing dividends would have looked for the chipmaker. And again, performance would be even better if these payments were reinvested.

Sticky patch

But all is not rosy. Computacenter shares have lost about 10% in 2024 so far, driven by declines in revenue and adjusted pre-tax profit of 13.4 and 28.4%, respectively, in the first half. This was partly due to “expected normalization of Technology Sourcing volumes against exceptionally solid bases of comparison“. Clearly, sales were not as good as at the same period last year.

On the other hand, that leaves the stock trading on a P/E ratio of 14. That’s a bit 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 market conditions in the UK» could stay. But analysts still expect the dividend to be easily covered by earnings.

Next time I have the money to add to my wallet, I might just stop here.