In the long run, it is dividend growth that really matters, as this also drives share price performance. The FTSE 250 is blessed with firms such as Halma (HLMA), which has delivered a stunning run of dividend increases of at least 5% or more that goes back over 30 years.

One firm which is looking to add its name to this illustrious roll of income honour is KCOM (KCOM). Under the guidance of chairman and chief executive Bill Halbert the Hull-based provider of telecom, broadband and IT services to consumers and corporations alike is targeting a 10% increase in its annual dividend for each of its 2014, 2015 and 2016 years, which end in March.

It may be the joint-smallest company in the FTSE 250 by market cap, but KCOM ranks tenth by dividend yield for the coming year. Its March 2015 5.4p payout equates to a 5.4% yield at the time of writing.

A third successive 10% increment would take the shareholder reward to 5.9p in fiscal 2016 for a 5.9% payout, which should prove very attractive to income hunters even if UK headline base rates and Government bond yields are moving up by then.

Strong signal

Research from broker Liberum Capital suggests the FTSE 250 offers a yield of some 3.0% for 2014. Around 80 firms look set to pay more than that average in 2014 and some, notably housebuilder Berkeley and software and IT services play Micro Focus International, look poised to line shareholders’ pockets with special distributions for good measure.

KCOM’s ambitions may not quite stretch that far, but then it appears the market is not entirely convinced the Hull firm can meet its existing dividend growth goals. The secret to the dividend progression plan is three-fold.

• Drive up average revenue per user at its Hull-based KC telecoms and broadband business after the roll-out of a state-of-the-art fibre network

• Improve returns from the national KCOM, Eclipse and 421 IT service and broadband units

• Reduce capital expenditure after a substantial investment programme

The market appears sceptical, perhaps because it fears KCOM will be dragged into the telecoms, broadband and content war being waged between industry behemoths BT (BT.A), BSkyB (BSY), TalkTalk (TALK) and Virgin Media. Such fears seem misplaced as KC has no rivals in Hull for legacy reasons and its position is too entrenched to challenge. As such, its dividend destiny is largely in its own hands, so long as KCOM keeps the regulator sweet.

Improved results from both units of the business will drive growth, while the quality of the firm may be underappreciated owing to that very strong competitive position enjoyed in Hull by KC.

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The prospective 5.4% yield is tempting and could lure in more buyers as and when KCOM shows it can increase profits and cashflow as planned. (RM)