FTSE 100 dividends in touching distance of pre-pandemic peak

Investors still need to focus on concentration risk

“By extension, investors must assess concentration risk when it comes to dividends as well as earnings. Just ten stocks are forecast to pay dividends worth £45.6 billion, or 55% of the forecast total for 2021. The top 20 are expected to generate 73% of the total index’s pay-out, at £61.1 billion.

“Anyone who believes the UK stock market is cheap on a yield basis, and looking to buy individual stocks, glean access via a passive index tracker or even buy a UK equity income fund needs to have a good understanding of, and strong view on, those 20 names in particular.”

Source: Company accounts, Marketscreener, consensus analysts’ forecasts, Refinitiv data

The ten firms forecast to be the biggest dividend payers

“Rio Tinto is expected to be the single biggest paying stock within the FTSE 100 in 2021. Not all investors will welcome this, especially those who feel that mining does not pass their socially responsible investing (SRI) or environmental, social and governance (ESG) screen tests, especially after Rio’s appalling behaviour when it destroyed sacred aboriginal sites as part of a copper mine extension in Australia. However, others will welcome how new chief executive Jakob Stausholm is both reforming the company’s governance and cash flow.

“What also catches the eye is that Shell and BP still both feature in the list of the ten biggest payers, even after their dividend cuts of 2020. Again, this may have ESG-oriented investors gnashing their teeth, especially as they may argue both firms are acting too slowly in their attempts to shift their business mix to more renewable sources of energy. Shell and BP do have a tricky balancing act as they look to get the best out of their existing assets, reinvest for the future (without overpaying here, amid the mad scramble for ‘green’ assets) and keeping shareholders sweet with cash returns.”

Source: Company accounts, Marketscreener, consensus analysts’ forecasts

The ten firms forecast to have the highest yields in 2021

“Investors will have to look carefully at the list of the highest-yielding firms, as some of them have a track record of having to cut their dividend payments when times get tough.

“At the time of writing, Evraz is the highest-yielding individual stock, closely followed by Rio Tinto and then BHP. Forecast yields of more than 10% may make investors a little wary, given the shocking record of firms previously expected to generate such bumper returns, including Vodafone, Shell, Evraz itself and – when they were still in the FTSE 100 – Royal Mail, Marks & Spencer and Centrica. All were forecasts to generate a yield in excess of 10% at one stage or another and all cut the dividend instead.

“BHP’s likely disappearance from the FTSE 100 in 2022, when it adopts a Standard rather than a Premium listing and makes its primary base Australia, is another factor for investors to ponder, at least if they are seeking to glean yield from index-tracking funds.”

Source: Company accounts, Marketscreener, analysts’ consensus forecasts, Refinitiv data