There’s no such factor as a assured dividend earnings. As we noticed in the course of the pandemic, even probably the most dependable of dividend shares can cut back, postpone, or cancel shareholder payouts when crises come alongside.

Nonetheless, there are steps we as traders can take to cut back the chance of dividend disappointments. Such ways could also be particularly vital immediately as contemporary knowledge exhibits British dividends falling once more.

Right here, I’ll present you ways I can shield myself, and focus on a prime dividend inventory I’d purchase if I had money readily available to speculate.

Q3 dividends lowest since 2020

Earlier than I do, let’s take a look at that gloomy UK dividend knowledge from the third quarter. In accordance with Computershare, payouts from British corporations slumped 8.1% on a headline foundation to £25.6bn. Excluding particular dividends, the entire was down 3.5% at fixed currencies.

As a consequence, the July-August interval was the worst third quarter for dividends since 2020, when corporations scrambled to avoid wasting money following the Covid-19 outbreak.

Computershare stated: “The decline reflected steep cuts in the mining sector in particular” whereas “a stronger pound; unusually low, one-off special dividends; and large share buyback programmes” additionally hampered investor payout at headline degree.

Taking precautions

Buyers can’t completely shield themselves in opposition to falling dividends. Hardly anybody predicted that Shell — which hadn’t reduce dividends since World Warfare Two — would scale back payouts earlier than the pandemic, to quote a well-known instance.

However we will enhance our probabilities of receiving a robust (and hopefully rising) passive earnings by selecting corporations which have:

• Market-leading positions in mature industries
• Numerous income streams, as an illustration by totally different geographies and product classes
• Aggressive benefits (reminiscent of highly effective manufacturers and low value bases)
• Sturdy stability sheets, with low debt and reliable money flows
• Experience in defensive, recession-proof industries (reminiscent of utilities and healthcare)

The excellent news is that UK traders can discover many shares that meet all or most of those standards. Defence contractor BAE Techniques (LSE:BA.) is one I’d purchase for my very own portfolio.

A prime FTSE inventory

As you may see, the FTSE 100 firm has a protracted historical past of dividend progress courting again many years. That is because of a wide range of components. Firstly, Western defence spending stays steady no matter financial circumstances. And as a important provider to the US and UK militaries, BAE Techniques enjoys particularly strong earnings visibility.

The enterprise additionally manufactures a wide range of applied sciences for land, air and sea. So long-term revenues proceed to develop whilst the character of warfare evolves over time.

Lastly, main defence contractors like this get pleasure from formidable limitations to entry, because of points like safety and experience. This, in flip, reduces the aggressive risks they face.

BAE Techniques isn’t with out danger. Provide chain disruption, as an illustration, is affecting your entire aerospace business.

But Metropolis analysts don’t suppose it will derail the agency’s progressive payout coverage, as proven within the desk under:

As international defence spending spikes, BAE Techniques could also be top-of-the-line dividend progress shares to contemplate immediately.