Rising inflation is wreaking havoc with stock markets, leading to declining valuations and increased volatility. The FTSE 100 is down 6% year to date as a consequence, falling over 3% yesterday on news that the Bank of England was raising interest rates to 1.25%.

Portfolio protection

In the UK, inflation reached 7.8% year-on-year for April 2022. The May figure is expected to be released by the ONS on 22 June and is predicted to be even higher. As a consequence, the Bank of England has raised interest rates to 1.25% with the aim of slowing down price growth. This is putting serious pressure on stock valuations as people can now achieve higher risk-free returns.

In order to protect my portfolio from this rising inflation, I am looking to build up positions in income stocks: low-risk, high dividend-paying companies. These types of stocks are perfect for today’s market as they provide stability amongst market-wide volatility, whilst simultaneously outpacing inflation with high dividends. With inflation at 7.8%, I am hunting for good value stocks that pay a yield surpassing this figure.

In addition to high dividends, I am looking for stocks in ‘defensive’ industries. These are industries that tend to perform well in times of market volatility.

Companies in these industries tend to pay consistent dividends and generate stable earnings regardless of the overall stock market. Examples of defensive industries include telecommunication, as telecom firms often have large amounts of pre-existing infrastructure and large customer bases, meaning they can control prices in line with inflation.

An income stock I have my eye on

A high-yielding stock that I currently have my eye on is Rio Tinto (LSE: RIO). It is a multinational mining company, which specialises in base metals. The stock has performed well so far in 2022, up 12% year to date.

Rio Tinto currently offers a juicy 10.6% dividend yield, protecting me against the eroding value of money. In addition to this, the shares currently trade on a very cheap looking 5.1 price-to-earnings (P/E) ratio. This is strides below the widely accepted P/E ‘value’ barometer of 10. Comparing this to another global miner and close competitor, Glencore, I see value. Glencore currently trades on a P/E ratio of 16.

In addition to this, inflation usually benefits commodity producers, as it increases the value of commodities like gold and silver. Therefore, a Rio Tinto position could be a good inflation hedge for my portfolio. Also, the ongoing war in Ukraine has led to concerns over the supply of steel. Rio Tinto mines iron ore, which is a key component of steel. With the supply shortage further driving up iron prices, Rio Tinto is well positioned for more growth.

Therefore, I think Rio Tinto could be one of the best income stocks to add to my portfolio in the current macroeconomic climate. It has a high dividend, is low risk, and has a cheap valuation. I am therefore looking at buying shares for my portfolio soon.

The post How I am using income stocks to combat rising inflation appeared first on The Twelfth Magpie.

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• The only FTSE 100 stock I own right now

Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Three reasons the LLOY share price can rise

I think there are also plenty of reasons why its share price can rise in the foreseeable future. 

For one, there’s now light at the end of the Covid-19 tunnel. Investors are bullish now it’s widely believed that it’s only a matter of time before life goes back to normal. In fact, the wider stock market rally alone can continue to drive up share prices of individual stocks like LLOY. 

Two, the Lloyds Bank, like other FTSE 100 counterparts, can start paying dividends now. And they are unlikely to face disruption again. The Bank of England has just said that barring banks from dividend payouts last year was a particular situation. Income investors can be encouraged by this.

Three, the bank’s prospects look good too. According to The Financial Times, analysts expect improvement in LLOY’s financials. On average, they also expect the share price to rise slightly from its current levels. Going by the fact that its share price is still much lower than pre-crisis levels, I think there’s even more reason to believe that the upturn will continue. 

Two reasons to be cautious

But there are also reasons for caution. I had detailed some of them in my article on LLOY last week. Risks from the national lockdown and Brexit are high, in my view. They can diminish the economic outlook and, relatedly, the bank’s prospects for 2021. 

Also, its long-term share price history inspires little confidence. If it were more obvious that things would improve in 2021, I could feel confident about the Lloyds Bank share. But not right now. 

What I’d do next

So what wins on balance? The bulls or the bears?

There’s no denying that LLOY is a very popular stock among investors. I think long-term income investors, who are focused only on the income aspect of the stock, might be one set that find it attractive. Those who buy now will probably get a higher dividend yield from an investment in LLOY, as the price will quite likely rise at least a bit when dividends kick in.

I’m not that investor, however. I do like both capital growth and income and in that department the Lloyds Bank share leaves me wanting. Many other FTSE 100 stocks offer the option of both growth and income. One example is the utility provider Severn Trent, which I wrote about in some detail yesterday. 

Besides, right now, I don’t even know the dividend amount LLOY will finally decide on and whether it will be competitive. I’ll wait at least until the lockdown lifts to get a clearer understanding of the economic environment before I consider buying the Lloyds bank share. 

The post Should I buy the Lloyds Bank share after its 30% price increase? appeared first on The Twelfth Magpie.

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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

#1. Green light for dividends

One of the big blows to FTSE 100 banking stocks came when the Bank of England (BoE) asked them to hold back on dividends. It was of the view that in an uncertain climate, it’s a good idea to maintain banks’ cash buffer. Already impacted by the stock market crash of March, this further exacerbated their share price declines. 

One example is Lloyds Bank, whose share price fell sharply after the announcement. With its indifferent stock price movements, its unique selling point was its hefty dividend yield, which explains investor disappointment. It has started recovering in earnest only since the stock market rally of last month.

In good news, however, last week BoE decided to greenlight dividends once again. FTSE 100 banks like Standard Chartered have already indicated that they could initiate dividend payouts by as early as February next year. Similarly, Barclays’ return to profits after a loss last year bodes well. The bank has said that it will make a decision on dividends only in 2021, but its results give hope. HSBC is also contemplating re-starting dividend payouts. 

#2. Hopes of better economic times

2021 also looks better from an economic perspective. Some improvements are already visible, forecasts for UK’s economic growth are positive and, with Covid-19 vaccinations underway, it appears that it will only be a matter of time before we put the pandemic behind us. Banks’ performances are closely linked to the economy. A growing economy demands greater credit and gives banks the flexibility to increase interest rates. 

As it is, the UK economy has responded to the government’s fiscal stimulus. The stamp duty waiver has been a particular success. Banks like NatWest and Barclays have had to tighten lending conditions to meet the growing demand for home loans as housing demand rises, according to a Financial Times report. This is expected to continue until at least the end of March next year. 

The downside for FTSE 100 stocks

However, there’s a downside too. We don’t know how the bad loan situation will turn out. If the economic damage turns out worse than was initially anticipated, banks’ financials could suffer. Or a hard Brexit could be a blow to the economy. And the pandemic really isn’t over until it’s over. Banks could continue to reel under adverse new developments. 

The takeaway

Still, I’d wait and watch for now. First, I’d look out for their dividend payout announcements. I’d also wait for at least one more set of results to see if their performance improves further, especially since we’ve been in a second lockdown recently and restrictions continue. How Brexit plays out is another immediate concern to me. 

But with an improving outlook and more certainty, I think FTSE 100 banks like Lloyds, HSBC, NatWest, Standard Chartered, and Barclays are worth being on the income investor’s watchlist. 

The post Why these 5 FTSE 100 shares are on my 2021 income investing watchlist appeared first on The Twelfth Magpie.

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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays, HSBC Holdings, Lloyds Banking Group, and Standard Chartered. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

An opportunity in the FTSE 100

Persimmon (LSE:PSN) is a housebuilding and sales business. By working with local officials and landowners, the company has been able to continually acquire property on which to build as well as gain planning permission.

Unlike other builders, Persimmon also controls the manufacturing of its most vital construction materials – namely bricks, tiles and timber.

Upon the completion of a house, the sales team steps in. Operating under one of three brands – Persimmon, Charles Church, and Westbury Partnerships.

I’ve previously discussed the imbalance between demand and supply of housing in the UK. With population growth expected to reach 70bn by 2030, the need for more housing isn’t going away any time soon.

The pandemic has definitely put a dent in the firm’s performance, with operations being temporarily closed down in March. However, thanks to an enormous cash war chest of £829m, it retained all staff on full pay without any reliance on government assistance.

Since then, it’s been business as usual. New safety procedures have been put in place to ensure employees and customers remain in a Covid-free environment.

The lockdown financials

The 2020 half-year results saw quite a steep decline in several key metrics for the FTSE 100 stock.

Most of the decline stems from the pandemic rather than any serious problem with the business itself. Therefore, I expect these declines to reverse in 2021.

The drop in home completions only further exacerbates the supply/demand imbalance. This has also likely influenced the rising average selling price of homes over the same period.

Operating profit margin has also taken a hit due to increased spending on employee and customer safety. However, the reduction is once again stemming from an exceptional instance. Even at 26.6%, the operating margin remains firmly ahead of the industry average of 24.4%.

The cash balance remains stable, and the net asset value increased by 21% in a time of industry-wide disruptions. Put together, I don’t see the business being in any immediate financial danger. This opinion also appears to be shared with the management team. They have recently confirmed that the previously postponed 2019 final dividend, will be paid on 14 December, with future dividends to be announced in March 2021.

The bottom line

Most of the fears surrounding the company have been eliminated in the most recent quarterly earnings report, I feel. Average weekly sales are up 38%, forward sales are up 43%, and customer satisfaction levels are near 90%.

All these trends suggest Persimmon is back on track. Therefore, I believe investors could soon be enjoying the 9% dividend yield that this FTSE 100 stock is famous for once again.

The post 1 high-yielding FTSE 100 stock I’d buy today appeared first on The Twelfth Magpie.

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Zaven Boyrazian does not own shares in Persimmon. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The opportunity

Anglo Pacific is a mining company that doesn’t do any mining. That may sound odd at first, but it’s actually quite brilliant. The firm provides funding for other mining businesses – like Rio Tinto and BHP Group – to develop and operate new sites in exchange for royalties in the form of minerals dug up from the ground.

I’ve previously explored how Anglo Pacific’s unique business model creates extraordinary levels of profitability within an industry that has virtually no pricing power. Since then, two new pieces of information have been released – third-quarter earnings, and an exciting announcement for shareholders.

The earnings report mostly followed expectations, with a slight decline in royalty revenue from £6m to £5.7m. This reduction hardly good news. However, the cause is mainly due to a longwall change out at the Kestrel mine in Australia.

Put simply, the mine was extended and fourth quarter royalties are expected to see an increase in production.

Another change out is planned for Q3 2021. It is expected to cause a similar level of disruption but once again, will further increase the production of the site.

A more impressive result is that two sites extracting uranium and vanadium saw a triple percentage growth of 117% and 131%, respectively. Despite the massive disruptions from Covid-19, both minerals – in addition to copper and iron – are reaching multi-year highs in value.

Share buyback scheme

Beyond earnings, it successfully completed a £5m share buyback scheme. As a reminder, share buybacks are an alternative to dividends, as a method of returning profits to shareholders. Buying back shares reduces the number of shares available on the market and thus increases the value for existing shareholders.

Therefore, since Anglo Pacific has around 180m shares outstanding, the firm indirectly paid a dividend 2.8p per share. This is in addition to the direct dividend payments of 1.75p due on 13th November 2020 and 17th February 2021.

At the current stock price of £1.03, collectively these payments represent a 6.1% return on investment over the next three months.

The bottom line

The closure of mines back in March had a significant impact on operations. As such, the stock is unlikely to achieve its historical double-digit growth this year. However, the performance loss is not due to a problem with the company but rather a pandemic that affected the entire world.

Of course, this is only my opinion. But it also appears to be similar to the views of the management team. Several of the board members – including CEO Julian Treger – have been buying up shares over the past month.

In light of all this new information combined with an incredibly attractive share price, I have doubled my stake in the business in my attempt to get rich.

The post How I’d invest £1,000 today and get rich appeared first on The Twelfth Magpie.

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• Is there any value left in Lloyds shares now they’re over £1?
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Zaven Boyrazian owns shares in Anglo Pacific. The Motley Fool UK has recommended Anglo Pacific. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Remarkably, it’s possible to build a robust income portfolio, even in the middle of a global pandemic. Since the worst of the pandemic back in the spring, companies have slowly been reinstating their dividends. Some never stopped paying them.

The ultimate income portfolio

In fact, it’s possible to build an income portfolio that not only keeps up with inflation, but that satisfies the most demanding income-seeking investors. What’s more, the income on offer is comparable with pre-Covid levels. There may be fewer options available, but they still exist.

The portfolio I’ve come up with contains eight large-cap UK stocks, and has a dividend yield of over 5%. It’s made up of IG Group (dividend yield 5%), Aviva (expected to be 5%+), Airtel Africa (7%), BAE Systems (4%), GlaxoSmithKline (5%), British American Tobacco (7%), M&G (10%), and BP (7%). As well as delivering an impressive income, this portfolio is also pretty-well diversified, covering a range of unrelated market sectors. That should reduce risk. While one sector may suffer, another may step up and outperform.

This income portfolio is also fairy evenly split into defensives and cyclicals. Defensives are likely to outperform if the current situation becomes worse. They’re also more likely to continue paying dividends come what may. Cyclicals on the other hand are better positioned to do well if things improve. There are also a couple of growth companies in there, which are either unaffected or even boosted by the pandemic and subsequent lockdown.

Cheap income stocks

On top of the impressive dividend yield of over 5%, this income portfolio also looks pretty cheap to me. All of these shares are either cheap on a price-to-earnings (P/E) or net asset basis. Aviva and M&G shares are priced at just four times last year’s earnings. BP is priced at a near £20bn discount to its net assets. The value of these shares should protect investors. Their low share prices mean that there’s less room for prices to fall.

Personally, I’d much sooner invest in this income portfolio and earn 5% interest, than put my money in a savings account where it earns less than 1%. Not only do these income stocks produce an impressive dividend, but they also have the potential to deliver share price appreciation. That’s exactly what I expect to happen. In a world of low rates, I think investors will be grabbing any chance they can get to earn these kind of returns, pushing share prices up in the process. And the NS&I savings rate cuts have only strengthened this belief.

The post Forget NS&I rate cuts. I’d build a 5% income portfolio from stocks instead! appeared first on The Twelfth Magpie.

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• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Thomas owns shares of IG Group, BAE Systems and Aviva. The Motley Fool UK has recommended GlaxoSmithKline. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Today I’m looking at a trio of FTSE 100 stocks that have informed the market of their intention to return cash to their owners. Thanks to their size and all-round resilience, I think all are worthy of consideration by those with one or both eyes on retirement.

Back on track

FTSE 100 paper and packaging group Mondi (LSE: MNDI) is first up.

Having withdrawn its final dividend of 55.72 euro cents per share back in April, the £7bn cap said earlier this month that it would now pay holders 29.75 euro cents for 2019.

It gets better. In addition to this payment, the company also announced a 2020 interim dividend of 19 euro cents per share. This is despite pre-tax profit in the six months to the end of June slumping 26% to €466m.

On a little less than 14 times estimated FY20 earnings, Mondi looks cheap in my book. The share price is still 35% below where it peaked in 2018, despite rising free cash flow and consistently decent margins and returns on invested capital.

Factor in the likely future growth in demand for sustainable packaging and I think this would be a great addition to any retirement-focused portfolio.

Defensive dividends

BAE Systems (LSE: BA) was my top pick for July. Since then, the shares have increased 9% in value. As pleasing as this is, the potential for capital gains wasn’t my prime motivation for highlighting the stock. Rather, it was the defensive qualities of BAE combined with the likelihood of the FTSE 100 giant confirming that it would reinstate its dividend. The latter has now happened. 

At the end of July, BAE’s management confirmed that a 13.8p per share cash return, once proposed and then deferred, would now be made to holders in September. On top of this, an interim dividend of 9.4p per share would be distributed in November to cover the first six months of 2020. 

According to CEO Charles Woodburn, BAE expects “a good second half to the year“. This is, of course, so long as we don’t get a significant second wave of the coronavirus. As things stand, group sales are expected to rise by “a low-single digit percentage compared to last year”.

Despite the subsequent rise in the share price, BAE still looks good value to me. The shares trade on 12 times forecast FY20 earnings. 

Viva Aviva

A third FTSE 100 stock that has restarted paying dividends is insurance firm Aviva (LSE: AV). Back in April, the company withdrew its dividend policy following guidance from the Bank of England.

This month, however, a second interim dividend of 6p per share was declared by management. Like Mondi, this is despite a heavy fall in pre-tax profit over the first half of 2020 (down 29% to a little under £1.1bn).

At 6 times forecast earnings, Aviva look priced for the apocalypse. However, prospective holders should know that the company still plans to review its longer-term dividend policy.

In practice, this will mean a lower but, importantly, sustainable payout. The remaining cash will pay down debt. Considering the latter is on par with the value of the entire company, this strikes me as entirely rational.

The post Dividends are back! Here are 3 FTSE 100 income stocks I’d buy for retirement appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Income-focused investment trusts could offer investors some protection from the widespread dividend cuts. One big advantage of income investment trusts is they provide exposure to a wide range of dividend-paying companies, limiting stock-specific risk.

In addition, investment trusts can retain up to 15% of the income they collect every year and use these ‘reserves’ to top up payments to investors during lean income years. This is a very handy feature if your objective is to generate regular income.

Below, I highlight two high-quality income-focused investment trusts I hold in high regard.

Investment trusts for income

The first I want to highlight is the City of London (LSE: CTY). This is a conservatively-managed investment trust that has a strong focus on large, blue-chip FTSE 100 companies. It has a phenomenal dividend track record, having increased its payout to investors every year for over 50 years now. 

Source: City of London Investment Trust

There are a few reasons I like the look of CTY right now. Firstly, its top holdings are reliable dividend payers. At 31 May, its top four holdings were British American Tobacco, Diageo, GlaxoSmithKline, and Unilever. None of these companies have cut their dividends in 2020.

Secondly, at 31 December 2019, the trust had £55m in reserves. This means it should have the firepower to continue paying dividends to investors in the current environment.

Last year, City of London trust paid out 18.6p per share in dividends, which equates to a trailing yield of 5.8% at the current share price. There’s no guarantee it’ll pay out the same level of dividends this year, however, I think the total payout will be attractive in the current environment.

If you’re looking for a reliable investment trust for income, I think CTY has a lot of appeal.

Dividend hero

Another investment trust I like for income is the Murray Income Trust (LSE: MUT). This one has a 5-star rating from Morningstar. It also has AIC ‘dividend hero’ status (as does CTY), meaning it has increased its dividend every year for over 20 years.

Like City of London, Murray Income Trust is invested in some very reliable dividend payers. At 31 May, its top four holdings were AstraZeneca, GlaxoSmithKline, RELX, and Diageo. None of these companies have reduced or cancelled their payouts in 2020.

And just like CTY, it has a solid level of reserves. According to a recent research report from Edison, MUT has sufficient revenue reserves to maintain its quarterly dividend payments for several quarters, if need be. The trust also expects to be able to maintain its long-term record of increased annual dividends, according to Edison.

Murray Income Trust has delivered a strong overall performance recently. For the year to 31 May, its NAV fell just 3.3%. By contrast, its benchmark, the FTSE All-Share index, fell 11.2%.

Meanwhile, the trust paid out dividends of 34p per share for 2019, which equates to a trailing yield of 4.5% at the current share price. Again, there’s no guarantee investors will see that level of payout this year. I’m confident the payout will be attractive though.

The post Dividends: I like these investment trusts for income appeared first on The Twelfth Magpie.

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Edward Sheldon owns shares in Unilever, Diageo, and GlaxoSmithKline. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline and Unilever. The Motley Fool UK has recommended Diageo and RELX. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Of course, if you’re willing to accept a little risk, there are plenty of ways to earn a higher return on your money at the moment. Here, I’ll explain how ‘income stocks’ could help you generate a yield of 5% or higher on your money, tax-free.

Income stocks explained 

Income stocks are those that pay their investors regular cash payments out of the underlying company’s profits. The payments are called dividends. When you own an income stock, you get paid a share of the profits on a regular basis for being a part-owner of the business.

In the UK, there are plenty of well-known income stocks and many pay their shareholders very generous income streams. Compared to the interest rates on offer from Cash ISAs and savings accounts, the yields on some income stocks are incredible.

Income stock examples 

Take FTSE 100 oil giant Royal Dutch Shell, for example. Last year, it paid its investors $1.88 per share (about £1.46 per share at current exchange rates) in dividends. Now, Shell’s share price is currently about £19. So that means that the yield on the current share price is roughly 7.7% (£1.46/£19 = 0.077). Buy the shares today at £19, and you could potentially earn an income return of 7.7% for the year (assuming Shell pays the same amount of dividends this year and the exchange rate remains constant).

Legal & General Group is another good example of an income stock that offers a stunning yield at the moment. It’s expected to pay out dividends of 17.5p per share to its investors for the 2019 financial year. At its current share price of 314p, that equates to a yield of 5.6%.

There are many more companies in the FTSE 100 that currently offer yields in excess of 5% including the likes of insurance firm Aviva, broadcaster ITV, advertising specialist WPP, and tobacco giant British American Tobacco.

Put together a portfolio of FTSE 100 income stocks within a Stocks and Shares ISA, and you could be looking at a yield of 5% to 6%, or even higher, completely tax-free. That certainly beats the abysmal returns on offer from Cash ISAs right now.

Risks to consider

Of course, it’s important to understand the risks of investing in income stocks. When you invest in the stock market, the value of your portfolio will fluctuate every day. Given the volatility of stocks, it’s generally recommended that you invest for at least five years. This kind of investment horizon will give you time to ride out the volatility.

Each company also has its own unique risks to consider. And if a company’s profits fall, the dividend payout can be reduced, or even cut completely.

Overall, however, I believe income stocks offer a lot of appeal in the current low-interest-rate environment. With yields of 5%+ on offer, they can help you earn a higher return on your money.

The post Forget the top Cash ISA rate. I’d pocket 5%+ from income stocks appeared first on The Twelfth Magpie.

More reading

• Why Barclays shares could have a huge second half of 2026
• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Edward Sheldon owns shares in Royal Dutch Shell, Legal & General Group, Aviva, WPP and ITV. The Motley Fool UK has recommended ITV. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Below, you’ll find the current consensus dividend forecast, the prospective yield, the expected dividend coverage, and some thoughts on each dividend stock. Just remember though, dividend forecasts aren’t always accurate and are subject to change.

BT Group

FY2020 dividend forecast: 15.4p
FY2020 prospective yield: 8.4%

BT’s 2020 dividend forecast (for the year ending 31 March 2020) is currently 15.4p per share. At the current share price, that equates to a yield of a high 8.4%. Analysts expect the telecommunications company to generate earnings per share of 23.8p, which gives a dividend coverage ratio of around 1.5.

My thoughts here? Personally, I’m not tempted by BT’s high yield at all. As I explained recently, I don’t think the firm’s dividend payout is sustainable. I say this because the company has a monstrous amount of debt on its books (plus a large pension deficit) and it also faces a substantial amount of capital expenditure in the years ahead. Looking further out to the FY2021 dividend forecast, analysts appear to share my thoughts as the consensus dividend forecast is 12.5p per share. I’d leave this high yield alone.

Royal Mail Group

FY2020 dividend forecast: 15.9p
FY2020 prospective yield: 7.4%

Royal Mail’s 2020 dividend forecast (for the year ending 31 March 2020) is currently 15.9p per share. That equates to a yield of 7.4% at the current share price. Analysts expect earnings per share of 22p, which gives the company a dividend coverage ratio of around 1.4.

This is another dividend stock I’d avoid for now. The reason I’d steer clear is that earlier this year, Royal Mail cut its dividend by 40%. I think buying a dividend stock after a big cut like that is a risky strategy. Given that the company is still facing plenty of challenges to its business, I wouldn’t be surprised to see another dividend cut in the near future. Like BT, analysts expect a lower payout (15.1p per share) from Royal Mail in FY2021. The high yield here is not worth the risk, in my opinion.

Royal Bank of Scotland

FY2020 dividend forecast: 14.9p
FY2020 prospective yield: 6.8%

Royal Bank of Scotland’s 2020 dividend forecast (for the year ending 31 December 2020) is currently 14.9p per share. That equates to a yield of 6.8% at the current share price. Analysts expect the bank to generate earnings per share of 24.4p, which gives a dividend coverage ratio of around 1.6.

Is RBS a good dividend stock to buy? Personally, I wouldn’t buy the stock for its payout at present. The reason I say this is that the company only reintroduced its dividend last year after cutting its payout completely in 2009. That means that it hasn’t yet put together a decent dividend track record that we can rely on, which is one of the first things I look for in a dividend stock. Without a consistent track record, it’s hard to forecast future dividend payouts. All things considered, I think there are much better dividend stocks to buy right now than either RBS or the other high yielders I’ve looked at here.

The post 2020 dividend forecasts: BT Group, RBS, and Royal Mail appeared first on The Twelfth Magpie.

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Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.