3 FTSE 100 stocks I think can increase their dividends now

FTSE 100 dividends may be back, but yields are still lower compared to pre-pandemic times. This could change now as companies’ performance improves.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I like to divide my investment portfolio between FTSE 100 growth and income stocks. My growth stocks have shown healthy growth over the past year, thanks to the stock market rally. But my income stocks have disappointed. This is partly because companies cut back on dividends during the pandemic. And partly because the dividend amounts are less than they were pre-pandemic. 

But I am optimistic that this can change now for at least oil and banking stocks. Both sectors are closely linked to the economy. And the economy is showing clear signs of picking up. The UK economy showed monthly growth of 2.3% in April as the second stage of lockdown easing kicked in. This is the sharpest growth in eight months. 

Oil biggies can make gains

Increasing demand in the economy has been evident in rising oil prices as well. We have seen this since the start of 2021. But it became glaringly obvious this past week as oil prices reached a two-year high

FTSE 100 oil companies BP and Royal Dutch Shell will continue to be gainers from this trend. Both of them saw improved recent results because of higher prices. Additionally, as the pandemic recedes further and travel can ease more, oil demand will increase further. Whichever way I look at it, oil companies stand to gain. 

I think this could prompt them to increase their dividends too, which were cut back last year. I hold both stocks because of the generous dividends I earned in the past and their long-term dividend history. And now, I am hopeful that they will increase again, unless the pandemic either forces travel restrictions again or extends existing restrictions for a longer time. 

Banks can increase dividends

Next, I am hopeful that at some point this year, banks will be in a position to increase their dividends. So far, their dividends have been subject to stringent regulation. Last year, as the stock market crash happened, the Bank of England’s (BoE) Prudential Regulation Authority (PRA) asked them to withhold dividends. 

By the end of the year, as the vaccines were developed and the overall environment started to look better, they were allowed to resume dividend payments. However, these have been subject to significant constraints based on their loans profile. As a result, so far their dividend yields are quite low. Not even one FTSE 100 bank has a yield higher than 2%.

But this too, can change. The PRA has said the present constraints are temporary. With sure signs of a pick up in the economy, the BoE’s own bullish estimates for economic growth in 2021, and improved results across the sector, I think banks will be free to pay higher dividends sooner rather than later. 

I particularly like Lloyds Bank from a passive income perspective. It had the highest dividend yield pre-pandemic across banks. Moreover, as a UK-centric bank, I think it is best placed to gain from the economic recovery. On the flip-side, it could suffer if the recovery falters or if loan repayments become weak. But I think that risk is small. I would consider it from a long-term perspective.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Manika Premsingh owns shares of BP and Royal Dutch Shell B. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Here’s what dividend forecasts could do for the BP share price in the next three years

I can understand why the BP share price is low, as oil's increasingly seen as evil. But BP's a cash…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

This FTSE 100 Dividend Aristocrat is on sale now

Stephen Wright thinks Croda International’s impressive dividend record means it could be the best FTSE 100 stock to add to…

Read more »

Investing Articles

3 shares I’d buy for passive income if I was retiring early

Roland Head profiles three FTSE 350 dividend shares he’d like to buy for their passive income to support an early…

Read more »

Investing Articles

Here’s how many Aviva shares I’d need for £1,000 a year in passive income

Our writer has been buying shares of this FTSE 100 insurer, but how many would he need to aim for…

Read more »

Female Doctor In White Coat Having Meeting With Woman Patient In Office
Investing Articles

1 incredible growth stock I can’t find on the FTSE 100

The FTSE 100 offers us a lot of interesting investment opportunities, but there's not much in the way of traditional…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

With an £8K lump sum, I could create an annual second income worth £5,347

This Fool explains how a second income is achievable by using a lump sum, investing in stocks, and the magic…

Read more »

Investing Articles

Here’s what dividend forecasts could do for the BT share price in the next 3 years

With the BT share price down so low, the dividend looks very nice indeed. The company's debt is off-putting, though.…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

28% revenue growth per year and down over 20% in price! Should I invest in this niche FTSE 250 company?

Oliver says this FTSE 250 company has done an excellent job bringing auctioning into the modern world. Will he invest…

Read more »