It's been a good year for the FTSE 100, but there are still some great large-cap yields on offer.
In the last year, the FTSE 100 (UKX) has increased 7.2%. Today, it stands within just 2.5% of a four-year high. However, there are shares across a range of sectors still offering big yields.
Normally, this only happens in the depths of bear markets. However, higher dividends, higher profits and modest share price growth mean that income investors are spoilt for choice.
I've scoured the FTSE 100 to find what I think are five of the best income opportunities in the index today.
|Company||Price (p)||P/E (forecast)||Yield (forecast, %)||Market cap (£m)|
|Royal Dutch Shell (LSE: RDSB)||2,201||8.4||4.9||138,170|
|National Grid (LSE: NG)||718||13.1||5.7||26,190|
|GlaxoSmithKline (LSE: GSK)||1,366||12.1||5.4||67,270|
|BP (LSE: BP)||429||7.3||5.5||81,960|
|Vodafone (LSE: VOD)||163||10.4||6.0||79,710|
1) Royal Dutch Shell
Shell is one of the stock market's great all-time income shares. Its dividend has not been cut since the end of World War II. In 2011, Shell paid out more in dividends than any other FTSE 100 company.
Don't let the big dividend yield fool you: Shell has not been a bad investment.
In the last five years, the Shell dividend is up 32.3%. However, in that time, the shares are just 10.5% ahead. This has pushed Shell's yield toward 5%. On current forecasts, Shell will yield 4.9% for 2012. The payout is expected to increase to 5.1% for 2013.
Earnings are expected to fall back slightly for 2012, before growth is resumed next year.
2) National Grid
National Grid 'joins everything up'. The company owns the systems that deliver gas and electricity across the UK. National Grid is a vital part of the economy. This brings with it reliable cashflows. The company passes this money on to shareholders through dividends.
In the last 14 years, dividends at National Grid have been increased threefold. In the last five years, the dividend has risen, on average, 8.8% a year.
The shares now trade at a high for the year and within 10% of a new all-time high. The dividend is expected to continue rising for the next two years. This means, that at today's price, the 2014 yield is estimated at 5.8%. Earnings are forecast to grow this year and next.
Glaxo shares trade just 2% from their low for the year. In the last 12 months, Glaxo has trailed the FTSE by 13.6%. I'm not sure even this pharma giant sells anything to soothe that kind of pain.
What Glaxo can do is keep pushing through dividend increases. In the last five years, the dividend at GlaxoSmithKline has increased, year-on-year, by an average of 7.8% per annum.
Dividend increases are also forecast for the next two years. If the company meets these expectations, the 2013 yield will approach 5.7%.
There are some fears that in an era of government budget cuts, Glaxo may struggle for earnings growth. On the current P/E, Glaxo shares trade at a small discount to the average FTSE 100 stock. The dividend is well covered by earnings but my instincts tell me that the shares could go either way from here.
I've recently been examining the investment case at BP.
Today, it feels like the market is playing a game of 'wait and see' with the shares. BP has not yet drawn a line under the Macondo oil spill. There is the possibility of more fines to come. BP also has a new tie-up with Rosneft in Russia. The company is yet to demonstrate just how profitable this new venture will be.
The Gulf crisis forced BP to drop three of its quarterly dividends in 2010. Since then, the dividend has been reinstated and rapidly increased. This year's total payout is expected to be 35.2% ahead of the 2011 distribution. Analysts expect another 10.9% rise in dividends for 2013.
I expect the shares will be re-rated higher if BP can make clear its long-term earnings potential.
For me, Vodafone is a two-play share. First, there is the chunky dividend yield. Second, there is the possibility that the shares could move significantly higher in the short term.
Vodafone has been increasing its dividend payout to shareholders every year since 2000. Then, the annual dividend was 1.3p. This year, it is expected to hit 9.81p per share.
Last year, the dividend at Vodafone was even higher. That is because the company paid a special dividend of 4p per share. This came from a payment that Vodafone received from Verizon Wireless. This is the joint venture that Verizon Communications runs with Vodafone in the US.
Vodafone will be receiving another large payout from Verizon Wireless this year. £2.4bn is due to be paid to Vodafone before the end of December. Vodafone plans to use £1.5bn of that money to buy back its owns shares in the market. That's almost 2% of the total stock in issue. I expect that this buying pressure could lead to a significant rise in the Vodafone share price.
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> David owns shares in Vodafone but none of the other companies mentioned. The Motley Fool has recommended shares in Vodafone.