Russ Mould, investment director at AJ Bell, writes for Wealth DFM Magazine.
The FTSE 100 is currently expected to yield 3.7% in 2021, helped by the first year of dividend growth since 2018. The index’s total dividend pay-out is expected to reach £76.9 billion in 2021, compared to £61.5 billion in 2020.
That equates to a 25% or £15.2 billion post-pandemic rebound, with analysts forecasting a more modest £2.9 billion or 4% increase in 2022. Total payments peaked at £85.2 billion in 2018 and even 2022 is not expected to return to that level as corporate profits, cash flows and confidence look to recover from the effects of the pandemic.
Source: Company accounts, Marketscreener, analysts’ consensus forecasts
Share buybacks are supplementing dividends
To supplement higher dividends, FTSE 100 firms are also starting to deploy share buybacks with greater confidence. Twelve constituents of the UK’s leading stock index have announced share buybacks with an aggregate value of £7.2 billion. They are Barclays, Berkeley, BP, CRH, Diageo, Ferguson, NatWest, Rightmove, Sage, Standard Chartered, Unilever, Vodafone – and Rightmove has yet to confirm the sum involved.
By contrast, just two FTSE 100 firms – JD Sports Fashion and Severn Trent– have tapped investors for money so far this year and that was for just £714 million between them. That compares to 14 deals for a total of £16.3 billion in 2020.
That may offer some encouragement to those with hefty exposure to UK equities, bearing in the mind the adage about how ‘bull markets end when the money runs out.’ At the moment, dividends and buybacks mean more money is flowing into investors pockets than is flowing out.
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, Rio Tinto is the highest-yielding individual stock, closely followed by BHP. Forecast of yields in the region of 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 forecast to generate a yield in excess of 10% at one stage or another and all cut the dividend instead. China’s reported displeasure at soaring iron ore prices may persuade some investors to question whether Rio Tinto really will make such a bumper payment and analysts do not expect a repeat performance in 2022, perhaps for that reason.
Dividend yield (%)
Dividend cover (x)
Pay-out ratio (%)
Cut in last decade?
2012, 2013, 2014, 2020
2013, 2017, 2019
|M & G|
No – listed in 2019
|British American Tobacco|
2015, 2016, 2020
Source: Company accounts, Marketscreener, analysts’ consensus forecasts, Refinitiv data