One strong feature to look for when choosing FTSE 100 stocks to buy is a growing annual dividend.
I’ve found one with a decent record of dividend expansion and strong City analysts’ forecasts for further rises ahead. The compound annual growth rate of the dividend is running at a decent 14% right now.
Steady trading
The company operates in the steady, defensive sector of pharmaceuticals. I like that because it helps me avoid some of the volatility of more-cyclical sectors.
Nevertheless, all businesses and stocks come with risks as well as positive potential. For example, one thing I’ve noticed with defensive businesses — such as the pharmaceuticals — is they can ebb and flow in popularity with investors.
That can lead to valuations and earnings multiples rising and falling over time. So defensive companies’ share prices sometimes wiggle up and down even if their underlying businesses continue steady trading. In that sense, such stocks can look a bit cyclical at times.
But when defensive company valuations are modest, it’s often a good time to strike. The FTSE 100 firm in my crosshairs at the moment — cue the drum roll — is Hikma Pharmaceuticals (LSE: HIK).
The business develops, manufactures and markets generic, branded and in-licensed pharmaceutical products including injectables. Operations are international in scope, and the firm’s dividend record speaks of a business that looks like it’s thriving.
By 2025, that shareholder dividend payment is forecast to have more than doubled since 2018. If such progress can continue in the coming years, it’s possible Hikma Pharmaceuticals may make a useful addition to my diversified long-term portfolio.
Decent long-term potential
But can the business keep growing? Well, in August, the company released a decent set of half-year results with an upbeat outlook statement. Meanwhile, analysts have pencilled in modest single-digit percentage gains for revenue and earnings averaged over this year and next.
I’d say the progress looks workmanlike rather than outstanding. But the share price chart reflects that situation.
The business grows its revenues organically and via bolt-on acquisitions. But it’s not the only operator in the sector, so one of the risks is competition from other players. On top of that, earnings have struggled to grow lately because of the supply-chain disruptions and cost-inflation pressures many firms have faced. There’s some risk such difficulties may continue.
Nevertheless, with the share price near 1,913p, the forward-looking dividend yield is just over 3% for 2025. I think that looks like a fair valuation for a company that has a history of robust dividend growth.
Therefore, despite the risks, I’d be keen to conduct further and deeper research now with a view to picking up a few of the shares for their long-term potential.
