Dividend yields are the true glory of the FTSE 100 these days. As share prices retreat from April’s record highs, yields have soared. You can find plenty of stocks on the index yielding more than 6% or 7%, but at these heady levels you have to question whether the dividend is sustainable.
Happily, there are plenty of FTSE 100 stocks offering more secure yields that should deliver a reliable income stream even in today’s troubled markets.
Dividend Driver
One of them is British American Tobacco (LSE: BATS). Yes, you can get better yields than 4.27% right now, but few are as resilient. It is also progressive, the interim dividend was recently hiked 4%. Smoking may be in long-term decline in the West, but BATS’ Global Drive premium brands are taking growing market share, with first-half sales up 6%.
BATS generates 70% of its revenues from emerging markets, and although growth is slowing there as well, and weaker local currencies have hit profits, its global reach remains impressive. First-half revenues increased in global markets as diverse as Pakistan, Bangladesh, New Zealand, Canada, South Korea, Argentina, Mexico, Denmark and Germany. Cutting costs and generating cash should ensure that British American Tobacco will keep pumping out those dividends.
On The Grid
National Grid (LSE: NG) has been my favourite UK utility for some time, offering a steady yield with none of the share price swings that have blighted British Gas owner Centrica. Its status as a virtual monopoly in a heavily-regulated market gives a great revenue and profit stability, allowing it to fund an electric 4.96% yield. Over five years, the share price has grown 55% as well.
Strong cash flow, rising profits, healthy asset growth and steady dividend progression make this the ultimate buy and forget stock. Even its customers seem happy, surveys suggest. Investors certainly have nothing to complain about.
United We Stand
Water company United Utilities (LSE: UU) has been a real steady Eddie lately, with full-year revenue growth of 1.9% to £1.7bn and underlying operating profit growth of 4.7% to £664m. Today’s yield of 4.32% is also steady rather than soaring, but looks exciting enough to hard-pressed savers, especially as the prospect of a base rate hike recedes.
Management is aiming to lift the dividend at least in line with RPI inflation through to 2020. It did better than that last year, upping its full-year dividend by a racy 4.6%. Recent share price slippage has cut its pricy valuation to 16.8 times earnings, giving a better entry point. Although National Grid remains my utility of choice.
Dividend Call
Telecoms giant Vodafone (LSE: VOD) has enjoyed a strong 12 months in share price terms, rising 10% against a 10% drop across the FTSE 100. Yet it is still ringing up generous dividends, currently yielding 4.91%. That is impressive, given a dip in revenues in key European markets Germany, Spain and Italy. Any sign of a QE-fuelled eurozone recovery would quickly turn this around, especially if the continent’s youth start finding jobs again, and celebrate their good fortune with a gadget splurge.
Revenues have grown strongly in India and Turkey, and outside of the UK it has enjoyed success in its fixed broadband services, as it continues to explore new services (which may include TV in the UK). A strong balance sheet, successful acquisition strategy, and forecast earnings per share growth of 20% in the year to 31 March 2017 make Vodafone a reliable call.
