The FTSE 100 is trading close to record highs. But the blue chip index still offers a dividend yield of 4.3%. That’s well above the 30-year average of 3.5%, according to Link Asset Services.
If you’re prepared to invest directly in stocks, even higher yields are on offer. At the time of writing, seven FTSE stocks boast dividend yields of 7% or more.
I’ve pulled together a list of the 25 highest-yielding stocks in the FTSE 100, using broker forecasts for the 2020 financial year.
I’ve also included dividend cover for each stock. This compares a company’s profits with its dividend. If cover is less than 1 times, it means the payout is greater than the firm’s forecast profits. This could increase the chance of a cut.
7% and above
When stocks offer a dividend yield of more than 7%, it can mean two things. First, the market doesn’t think the payout will be sustainable. Alternatively, the market is pricing the stock for limited future growth.
|
Company |
2020 forecast yield |
Dividend cover |
|
Imperial Brands |
10.6% |
1.3x |
|
Evraz |
9.0% |
1.5x |
|
Taylor Wimpey |
8.8% |
1.1x |
|
BT Group |
8.4% |
1.5x |
|
Persimmon |
8.2% |
1.1x |
|
Aviva |
7.9% |
1.8x |
|
M&G |
7.6% |
1.5x |
Looking at this list, I see several unloved tobacco and financial stocks. These are mature businesses for sure, but I wouldn’t rule out future growth.
We’ve also got cyclical housebuilders and troubled turnaround BT, which is expected to cut its dividend by 20% next year.
Between 6% and 7% yield
At this level, dividend yields tend to indicate maturity, but with a lower likelihood of problems. That’s certainly my view of these businesses, and I own shares in several of them.
|
Company |
2020 forecast yield |
Dividend cover |
|
Standard Life Aberdeen |
6.9% |
0.9x |
|
Royal Bank of Scotland |
6.7% |
1.6x |
|
HSBC Holdings |
6.6% |
1.4x |
|
British American Tobacco |
6.4% |
1.5x |
|
Phoenix Group |
6.4% |
0.4x |
|
Legal & General |
6.3% |
1.8x |
|
BP |
6.3% |
1.3x |
|
Royal Dutch Shell |
6.2% |
1.4x |
|
Lloyds Banking Group |
6.1% |
2.0x |
|
Rio Tinto |
6.1% |
1.5x |
I’ve written recently about my attraction to oil giants BP and Shell. I rate Phoenix and Legal & General as decent picks for income and I’m also keen on RBS, which I think is approaching a turning point.
However, dividend cover looks poor at Standard Life Aberdeen. I’m unsure if this payout will survive.
I’m also uncertain about miner Rio Tinto. The group’s dividend is expected to fall this year, to give a forecast yield of 6.1%. Although I like this business, its valuation looks quite full to me. I’m unsure about buying at this time.
Under 6% yield
These companies yield between 1% and 1.5% more than the FTSE 100 average of 4.3%. So they still offer high yields. But the valuation of these stocks suggests to me that the market doesn’t see any major risk of a dividend cut.
This might be because the payout has already been cut, as at SSE and Centrica. Or it might be because analysts believe the current payout is sustainable.
|
Company |
2020 forecast yield |
Dividend cover |
|
WPP |
5.9% |
1.6x |
|
Barratt Developments |
5.8% |
1.6x |
|
Centrica |
5.6% |
1.8x |
|
ITV |
5.5% |
1.7x |
|
SSE |
5.4% |
1.1x |
|
British Land |
5.4% |
1.0x |
|
Barclays |
5.4% |
2.4x |
|
Admiral |
5.4% |
1.0x |
I believe that Barclays, like RBS, is an attractive buy at this time. I’m also keen on British Land for long-term income, and think that Centrica could offer value at this level.
This list is only a starting point for further research. But I hope it’s given you some ideas about how you can create a FTSE 100 high-yield income portfolio.
