Every quarter, the good folk at investment platform A J Bell produce their Dividend Dashboard. In these reports, A J Bell reviews FTSE 100 dividends in depth. The latest version (for Q3/21) is here (PDF). As a financial writer and value investor, I find this regular report tremendously useful. After all, cash dividends can account for half of the long-term returns from investing in shares. And the good news is that UK cash dividends are bouncing back this year, after a brutal 2020.
FTSE 100 dividends to hit £84.1bn for 2021
In the latest Dividend Dashboard, A J Bell expects FTSE 100 dividends to hit £84.1bn in 2021, versus £61.8bn in 2020. This works out at growth of more than a third (+36%). Also, this sharp increase lifts the total to within £1.1bn of its pre-pandemic high of £85.2bn in 2018. Furthermore, A J Bell now estimates the Footsie’s dividend yield for 2021 will be 4.1%, up from its earlier forecast of 3.8%. As for 2022 and 2023, A J Bell forecasts total cash pay outs of £85.1bn in each year, just £0.1bn behind 2018’s peak.
Footsie dividends are highly concentrated
Three important points to note. First, not all UK-listed companies pay dividends, but almost all FTSE 100 firms do. Second, dividends are not guaranteed and can be cut or cancelled at any time. Third, Footsie dividends are highly concentrated, with mega-cap heavyweights paying monster dividends. By investing in these dividend dynamos, I can claim my share of this cash mountain. For the record, A J Bell calculates that just 10 stocks account for £45.6bn of FTSE 100 dividends, more than half (55%) of the total. The top 20 biggest dividend payers account for £61.1bn, almost three-quarters (73%) of the total.
The UK’s five largest dividends
For the record, these five mega-cap companies pay the five largest dividends by size in the FTSE 100:
| Company | 2021E dividend | Dividend yield | Dividend cover | Cut since 2011? |
| Rio Tinto | £10.8bn | 17.8% | 1.28x | 2016 |
| British American Tobacco | £5.0bn | 8.1% | 1.43x | No |
| Royal Dutch Shell | £4.7bn | 4.2% | 2.86x | 2020 |
| BHP Group | £4.6bn | 11.3% | 1.03x | 2016 & 2020 |
| GlaxoSmithKline | £4.0bn | 5.7% | 0.95x | No |
| Total | £29.1bn |
As you can see, these 2021 forecast mega-dividends range from £4bn at pharma giant GlaxoSmithKline to a whopping £10.8bn at global miner Rio Tinto. The other three payments are £5bn from tobacco firm British American Tobacco, £4.7bn from oil & gas Goliath Royal Dutch Shell, and £4.6bn from Rio’s big rival BHP Group. The total of all five cash pay outs is a massive £29.1bn. That’s more than a third (34.6%) of the forecast total for the FTSE 100.
Dividend yields for the five range from 4.2% a year at RDS to a huge 17.8% at Rio. The average dividend yield across all five FTSE 100 stocks is a generous 9.4% a year. This is more than double (2.3 times) the Footsie’s forecast yield of 4.1% for 2021. However, it’s worth noting that GSK’s dividend is not fully covered by earnings, while BHP’s is barely covered. On the other hand, the Shell dividend is covered an impressive 2.86 times by its surging earnings.
However, because of concentration risk, I am not tempted to build a mini-portfolio from these five stocks. Such a portfolio would not be properly diversified, as it includes two mega-miners, one tobacco firm, one oil producer, and a healthcare business. Finally, note that three of the five have cut their dividends since 2016, including twice at BHP. This shows that dividends, while delightful, are never guaranteed!
