Dividend-hungry investors who are in despair after today’s BP dividend cut should take heart because plenty of FTSE 100 companies still offer fantastic yields. You can get income of up to 11% without taking unnecessary risks with your money.
The news will come as a huge relief after energy giant BP became the latest UK blue chip to take an axe to its shareholder payouts. Plenty of top FTSE 100 companies are standing by their dividends, even as BP cuts.
There is no question that UK dividends are now thinner on the ground, thanks to the Covid-19-related downturn. An incredible 176 UK companies have cancelled dividends and another 30 reduced theirs in the three months to 30 June, according to the latest Dividend Monitor from Link Group.
FTSE income squeeze
Headline dividends could halve this year, in the group’s worst-case scenario, costing investors an incredible £53.8bn. Companies have been forced into taking drastic action, to protect their balance sheets during the sharpest recession in history.
All of the big banks have been forced to drop their dividends. That means Barclays, Lloyds Banking Group, HSBC Holdings, NatWest Group, and Standard Chartered pay no dividends at all right now. Royal Dutch Shell has axed its prized payout for the first time since the war, while insurer Aviva, broadcaster ITV, Costa Coffee owner Whitbread and telecoms provider BT Group have scrapped theirs.
Link’s research shows that 60 UK companies did increase their payouts in the second quarter. That is pretty impressive, given the economic challenges that lie ahead. There are still plenty of income opportunities out there, despite the BP dividend cut.
Right now, Standard Life Aberdeen and Legal & General Group both yield more than 8% a year. Phoenix Group Holdings yields 6.96% and Vodafone Group gives you 6.68%.
Big tobacco is also a great source of dividends, with British American Tobacco yielding 8% and Imperial Brands Group an incredible 11%. Healthcare companies GlaxoSmithKline and AstraZeneca have been two great stocks to hold during the global pandemic, and currently yield 5.09% and 2.55% respectively.
Look beyond the BP dividend cut
Experienced investors will know the value of holding defensive utility stocks at times like these. National Grid, a sector favourite of mine, yields 5.31%. United Utilities Group is close behind, yielding 4.68%. SSE yields a whopping 6.09%.
There are plenty more top dividend payers there. They include mining giant Rio Tinto, which yields 6.33%, Tesco‘s 4.14%, and Diageo‘s 2.51%.
Despite the BP dividend cut, it remains a top income stock. Even now you will get a very welcome 5.4% a year. No wonder its share price actually jumped on the news.
The bulk of the FTSE 100 dividend cuts should be over for now. Companies that are standing by their dividend can probably afford to do so. In today’s troubled market, it pays to choose your income stocks carefully, rather than buying the whole index.
As you can see, the BP dividend cut is not the end of the world. The income is still out there.
