As an income investor, the dividend yield of a stock is very important. However, it only tells me the yield at that specific point in time. By looking at the growth rate in the dividend per share over a few years, I get a much better feel for whether the dividend is sustainable for the future. With that in mind, here are a couple of my favorite FTSE 100 income stocks that have high long-term dividend growth rates.
A FTSE 100 income stock with growth potential
First up is Auto Trader (LSE:AUTO). The online vehicle marketplace enjoyed a decent 2021, with the share price up 12% over the past year. Last month I wrote about several reasons why I was bullish on the company for this year. The half-year results that were released in November started out by saying that “we have achieved our highest ever six-monthly revenue and profits”.
This has been in part thanks to the high demand for used cars and the pivot to make it easier to filter and find electric vehicles on the site. Its willingness to evolve has enabled the company to grow the dividends that are being paid out to investors. Over a five-year period, the annual growth rate in dividends has been 23%.
At the moment, the rising share price has meant that the dividend yield is low at 1.2%. Yet I’d still add this to my portfolio of income stocks. This is for two reasons. Firstly, I’d buy shares in Auto Trader to offset the risk of any much higher yielding (10%+) company that’s high risk. Secondly, if this 23% growth rate continues in coming years, the yield will quickly start to move higher.
As a risk, the company does need to factor in the rising prices of second hand cars, due to a shortage of chips and Covid-19 related delays for new cars. This could make it too expensive for some to actually buy a car right now, reducing sales. But that doesn’t seem to be happening for now.
Riding the wave of high commodity prices
The second FTSE 100 income stock is Antofagasta (LSE:ANTO). The dividend yield is 4%, making it an above-average-yielding income play. Further, the compound annual dividend growth rate over the past five years has been 87%. Personally, I’d be happy to buy shares in this as a standalone dividend stock, or as part of a portfolio.
The business is an international mining company based in Chile. It mainly produces copper, which has a wide range of commercial uses. Part of the gains in the dividends can be seen from the rise in the price of copper. Over the past five years, the copper price has surged 66%, to currently trade at $4.31 per tonne. A higher price of the metal enables Antofagasta to grow revenues, ultimately helping to give the opportunity to pay out more profit to shareholders.
In a recent production report, the CEO did cite risks for the business. They include “the ongoing drought in Chile, higher input costs and global supply chain challenges”. All of these have the potential to derail and lower production for the coming year for the income stock. Yet it remains a stock that I think could suit my portfolio.
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Jon Smith has no position in any share mentioned. The Motley Fool UK has recommended Auto Trader. 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.
