With 144 years of compound dividend growth, are these the 3 best UK dividend stocks of all time?

Witan Investment Trust it is a budget with an excellent track record of increasing its returns to shareholders. For the year ended 31 December 2023 (FY23), it increased its annual payout for the 49th consecutive year. With a dividend of 6.04pa, it now pays more than double what it did in 2013.

However, i Scottish American Investment Company you did better. FY23 marked its 50th consecutive year of profit growth. Appropriately, the front cover of its annual report contains the line: “Recurring income“.

With an increase of 'only' 45 years, Halma (LSE:HLMA) could be considered a bargain. However, the life-saving technology group can boast that this annual increase has been 5% or more. Now that's impressive.

What am I thinking?

In my opinion, these three are the most reliable dividend stocks in the UK. They are all part of the exclusive group of Dividend Aristocrats. But I don't think they are the best.

That is because their overall yield is low. Witan, SAIC and Halma currently (4 October) offer returns of 2.3%, 2.8% and 0.8%, respectively.

There are many opportunities for higher productivity in other areas. For example, the ratio for the FTSE 100 it is 3.8%.

Halma's return is particularly disappointing given that each year – for four and a half decades – it has increased its payout by at least 5%.

However, the low yield shows how much the stock price has risen during this period. The growth rate of its stock price far exceeded its share.

Different priorities

But the company can pay more if it chooses.

For the year ended 31 March 2024 (FY24), it reported adjusted earnings per share (EPS) of 82.4p. With a dividend of 21.61p, it returns only 26% of its profits to shareholders.

Instead, Halma chooses to retain its capital to help finance its growth through acquisitions. Since 1971, 170 small and medium-sized companies have been acquired. Its goal is for each annual acquisition to add 5% or more to profits.

And to the delight of its shareholders, the strategy seems to be working. Since FY20, it has been able to increase its adjusted EPS by 43.6%.

But to illustrate my earlier point about pay not matching profits, the company's shares are up 'only' 31% during this period.

However, its shares are expensive – shares trade at a historical price-to-earnings ratio of 31.5.

Its return on investment also seems to be going in the wrong direction. In FY24, it was 14.4%, compared to 16.3%, in FY15. This suggests that the growth rate may slow.

Final thoughts

With a yield of less than 1%, I have my doubts as to whether Halma meets the definition of an income share.

But no matter how it should be divided, I'd rather invest in stocks that are cheap and pay high – if highly volatile – dividends.