After a disappointing 2020, the next year promises to be much better for income investors. The outlook for the global economy has improved and the FTSE 100 index has rallied in line with that. With businesses back on track, I think it’s fair to expect dividends to improve.
Indeed, there are already indications of that. Banks like Standard Chartered and Lloyds Bank expect to start paying dividends from late 2021 too. But we don’t have to wait for them.
Even now, some FTSE 100 companies are paying dividends. In fact, some have started paying them after pausing them for a bit earlier in the year, like the property developer Persimmon.
The challenge, though, is that of yield. With broad-based dividend cancellation and cuts, yields have diminished in 2020. But there’s good news here too. There are at least three FTSE 100 stocks that have an over 5% dividend yield even now.
#1. GlaxoSmithKline maintains dividends on stable earnings
The first is GlaxoSmithKline, which has an appreciable dividend yield of 5.5%. With a gradual drop in share price over the past six months, GSK’s yield looks particularly elevated because of nothing more than the nature of yield calculation. Yield is the dividend amount as a percentage of current share price. If the share price falls, the yield increases. It’s not rocket science.
The important question is — why is GSK’s share price falling? It had a sluggish recent earnings report, with a decline in both revenue and adjusted operating profit. By comparison, peer AstraZeneca has shown better performance, including the release of results of its Covid-19 vaccine tests. The good news, however, is that GSK still expects earnings per share to be stable. Dividends should stay, it follows. Its performance should also pick up in 2021, boding well for dividend holders.
#2. Rio Tinto’s performance could improve in 2021
The FTSE 100 multi-commodity miner, Rio Tinto, has an even higher dividend yield of 6%. Industrial metals’ prices have shown a sharp rise this year, which is positive for the miner. With global growth expected to be better next year, especially with a focus on infrastructure creation through public spending, it should continue to see better times ahead.
Notably, unlike GSK, its high dividend yield isn’t because of a sagging share price, but despite a rising one. I’ve long maintained that it’s a good buy and continue to do so.
#3. National grid’s increased dividend
Lastly, the FTSE 100 energy provider, National Grid, is an income investment to consider. It has a dividend yield of 5.5% and it even increased its interim dividend recently. Despite a Covid-19 hit, the company has turned in a decent set of results with an increase in revenues and pre-tax profit, even though operating profit was down. I’ve been a bit vary of the stock recently because of uncertainty around it. But, its share price has fallen quite a bit. It’s one I’m considering buying now, while the price is still low.
