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3 companies to buy for growing dividends in 2016

Credit: Pictures of Money

Who doesn’t love a good dividend? I sure do. But after a wild year on the ASX in 2015, finding companies likely to grow dividends in the year ahead has become a challenge.

Commodity producers are out (yes, even you Woodside Petroleum Limited (ASX: WPL)); the banks still look pricey, and several former blue-chip safe-havens like Woolworths Limited (ASX: WOW) and Coca-Cola Amatil Ltd (ASX: CCL) are being squeezed by long-term competitive pressures.

So where should we look for growing, dividend-paying companies to invest in for 2016? Here are 3 companies which I think have good prospects of increasing dividends in 2016:

1. QBE Insurance Group Ltd (ASX: QBE)

Insurance giant QBE has had a scrappy couple of years profit wise, but is finally emerging from consolidation and cost cutting as a leaner, more profitable company.

QBE has been clear that its focus now is to return profit to shareholders through dividends and CFO Patrick Regan commented in the company’s Annual Report this year that “as we focus on growing profit, we will target strong growth in dividends.

True to its word, QBE has raised its maximum dividend pay-out ratio from 50% to 65%, starting with the 2016 interim dividend (paid out in October, 2016).

2. Challenger Ltd (ASX: CGF)

Challenger provides financial services in the form of wealth management and retirement income products, an area with growing demographic demand. The company has been steadily growing earnings over the last five years and dividends alongside it.

151210RP - Challenger1

Challenger’s performance looks likely to continue into 2016 with brand strength helping to buffer it from competition. Importantly for dividend investors, the company expects to be able to continue to pay 100% franked dividends for the foreseeable future.

3. NIB Holdings Limited (ASX: NHF)

Health insurer NIB Holdings has been grabbing market presence on both sides of the Tasman, buying its way in through acquisitions like World Nomad Group and One Path New Zealand this year.

The strategy will drive earnings growth into 2016 and it is likely that dividends will rise along with it. The company has increased ordinary dividends every year over the last five years and maintains a pay-out ratio of between 60% and 70% of Net Profit After Tax (NPAT).

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Motley Fool contributor Regan Pearson owns shares of QBE Insurance Group Ltd.. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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