In these uncertain times, investors focusing on companies with high and rising dividends should be well rewarded. Here are 8 FTSE 100 companies for your consideration.
Following one of the worst stock market years ever, a year in which the FTSE 100 index lost 31%, it's natural for investors to seek more stable and less stressful stock strategies. Dividend-paying shares provide you with an opportunity to achieve both.
Amongst other things, dividend-paying shares:
- Can be less volatile as a group than their non-dividend-paying counterparts.
- Can provide you with a real return right away; with non-dividend-paying shares, returns aren't realised until you sell.
- Allow you to choose what to do with the cash payouts -- reinvest in the shares, put it into savings, pay off your mortgage, or buy groceries…it's up to you.
- Offer you an inflation hedge when companies increase their payouts.
Shares Are Offering The Best Return
Currently the FTSE 100 index currently yields 4.8%. Obviously this yield will come under pressure as many companies, especially the banks, confirm they’ve cut or scrapped their dividends. Let’s assume the adjusted FTSE 100 dividend yield is 4%.
Still, when you compare the yield to the following three popular income generating alternatives…
Base interest rates: 1.5%
High interest savings accounts: 3.5%
10-year government bonds (gilts): 3.7%
shares offer you the best return.
But there is a catch. As I mentioned above, many companies are expected to slash or scrap their dividends. As well as banks like Royal Bank of Scotland (LSE: RBS) and Lloyds Banking Group (LSE: LLOY), there are doubts about whether big and popular companies like BT Group (LSE: BT.A) and Marks & Spencer (LSE: MKS) can avoid cutting their dividends.
8 High Yielding FTSE 100 Companies
With all this in mind, I've set out to find 8 of the highest yielding FTSE 100 dividend paying shares which are forecast to actually raise their dividend in 2009, and hopefully beyond.
| Company | Share Price | Forward Dividend Yield |
|---|
| BP (LSE: BP.) | 485p | 8.2% |
| ICAP (LSE: IAP) | 220p | 8.2% |
| First Group (LSE: FGP) | 258p | 8.0% |
| Rexam (LSE: REX) | 302p | 7.3% |
| Royal Dutch Shell (LSE: RDSA) | 1736p | 6.9% |
| Severn Trent (LSE: SVT) | 1082p | 6.7% |
| United Utilities (LSE: UU.) | 539p | 6.3% |
| Vodafone (LSE: VOD) | 128p | 6.4% |
You may have very quickly spotted that these are not the most exciting group of companies in the world. We’ve got two massive oil companies, one interdealer broker, one transport group, one packaging company, two electricity and water utilities and one mobile communications company.
I’m not for one moment suggesting this group of companies is suitable as your entire share portfolio – there is just not enough sector diversification. Instead, the list gives you…
1) An idea of the dividend yields available on stable FTSE 100 companies.
2) Some individual companies you may want to add to your existing share portfolio.
The Flashing Buy Signal
Back in October last year, in an article titled The Market Signal That Keeps Flashing 'Buy', Maynard Paton highlighted that before now, the dividend yield on shares topped the gilt yield only once before over the past 40 years, and that was for one day only, right at the last market bottom in March 2003.
This time around, the dividend yield on shares has consistently stayed above the 10-year gilt yield, and it likely to do so for quite some time.
Why? This is the worst recession since the Great Depression of the 1930s. Interest rates are at record lows, and heading even lower. The stock market is hardly about to take off – in fact it could go lower still, pushing the dividend yield even higher. Dividends are under pressure, but not so much that high yielding companies like the above will suddenly slash their dividends.
There’s always a chance of being wrong. Any number of the above 8 companies could cut or even scrap their dividends. That’s why I’d always urge you to have a diversified portfolio in terms of the number of companies, and the number of sectors.
A Dividend Yield Of Over 10%
If you are looking for more high yielding dividend share ideas, the Motley Fool’s Champion Shares stock picking service should be able to help. Maynard Paton focuses on shares with little or no debt, and many of his current recommendations have high and increasing dividend yields. One of his more recent recommendations, a FTSE 250 company with cash in the bank of £300m, has a forward dividend yield of over 10%! You can find out this company’s name, and get instant access to all Maynard’s current share recommendations, by taking out a 30-day free trial to Champion Shares. Free means free.
As ever, I wish you happy high-yielding investing.
More: Five Shares You Should Have Bought In January | Five Top Shares At Half Price
> Of the companies mentioned in this article, Bruce Jackson has a beneficial interest in ICAP and Lloyds Banking Group.
