FTSE 100 share prices have been recovering strongly in 2021 as the pandemic threat recedes. At the same time, many of the dividends that were cut during the early days of the crisis are bouncing back.
I invest mostly for dividends, and I recently wrote about my approach to finding the best long-term dividend stocks. Here, I’m going to expand on that by outlining some more FTSE 100 shares I have on my buy list.
BP (LSE: BP) cut its dividend in 2020, choosing the early days of the crash to announce its new Net Zero programme. BP aims to cut 30-35% of emissions by 2030, increasing its low carbon investment 10-fold in the same timescale. That seems ambitious for an oil company.
The BP share price crashed, and it’s still way down on its pre-pandemic level. But that’s given the rebased dividend yield a boost. The new level of 5.25c per quarter has already been lifted, to 5.46c in Q2 this year. I reckon that’s a yield of approximately 4.5% on the current share price.
BP isn’t without its risks, for sure. Being in the volatile oil business is a big one all by itself. And we’ve seen how oil prices can gyrate during times of uncertainty. So yes, I see a risk that the BP dividend might falter again in the future. But I think the company will do everything it can to avoid it.
Cyclical, but safe dividend?
BP might not offer the biggest yield, and neither does my next pick, BAE Systems (LSE: BA). In this case, we’ve a likely forward yield of around 4.2%. That’s pretty much in line with the FTSE 100 average, expected to come in at around 4.1% for 2021. But many of those stocks boasting bigger yields can’t offer the same level of cover by earnings.
BAE’s dividends have been covered around twice by earnings in recent years. And the same looks to be true at the moment, judging by the current outlook. That gives me more confidence the company can maintain its dividend and keep its progressive payments going in the coming years.
The defence business can be a bit cyclical, which is a risk. And it can keep valuations down. The BAE share price has had an erratic five years too, with an overall rise of less than 10%. That didn’t come close to matching the Footsie.
I do think there’s a risk that the shares could be seen as fully valued now too, after a strong run in 2021. But, overall, BAE is definitely a long-term dividend candidate for me.
FTSE 100 sector weakling
GlaxoSmithKline (LSE: GSK) surprises me a little. At least its lacklustre share price performance of recent years does. Maybe it’s because it doesn’t feature in the world of the Covid-19 vaccine the same way AstraZeneca does. But Glaxo has been reinventing its drugs development pipeline in the same way as its FTSE 100 competitor.
Over the past five years, AstraZeneca shares have soared by almost 80%. But at the same time, GlaxoSmithKline shareholders have seen only a little over 15%. Glaxo’s earnings have only been gaining modestly, and we even saw a dip in 2020. So that might well lie behind the underperformance.
Then there’s the dividend itself, which has been held at 80p for years. It was less than 1.5 times covered by earnings in 2020 too. Maybe the shares will pick up once we see enough earnings and dividend growth? Or maybe there will need to be a cut? That’s a risk.
In the meantime, the annual 80p would yield 5.7% on the current GSK share price. AstraZeneca, by the way, is set to yield just 2.5%.
Cash generative sector
I’ve almost always owned shares in at least one FTSE 100 insurance company. Currently I hold Aviva, but here I’m looking at Legal & General (LSE: LGEN). This is a company in a sector where earnings can be a bit wobbly over the short term.
Legal & General saw earnings per share dip 28% in 2020. But against the coronavirus background and the devastation to the financial sector, I think that was fine. And the dividend last year didn’t falter, held steady at 17.57p per share, though cover did drop to less than 1.3 times.
Things are already looking up for 2021. Forecasts suggest a yield of 6.3% for 2021. And if predictions come good, we should see cover by earnings of 1.8 times. That’s a good bit safer, and gives me some confidence in the yield. The stock is on a P/E of about eight too, which looks cheap to me even considering the risk.
And the risk isn’t insignificant. We are, after all, talking about a financial sector stock here. And we’re heading into a period of likely economic instability, with inflation already climbing. Still, on balance, I might add Legal & General to my investments.
Perennial FTSE 100 favourite
I just couldn’t finish this look at top FTSE 100 dividends without including National Grid (LSE: NG). The company’s a long-term favourite among income investors, because of the reliability of its dividend stream. Yes, it’s in a regulated industry, and I tend to be wary of regulatory interference in a free market. But does that really matter if the cash keeps flowing into shareholders’ pockets?
The latest gas price crisis has shown the big advantage of National Grid among stocks in the energy market. It doesn’t matter who sells the actual gas and electricity to end users, or who goes bust in a price crunch. National Grid just distributes the stuff, and gets its money anyway.
Cover by earnings is a bit low, which is another thing I generally dislike. It should be only around 1.3 times this year. But in this case, it doesn’t matter so much. The company has such a clear outlook on its business that it doesn’t need the same safety margin.
The dividend yield? Forecast at 5.2%. It’s on my list.
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Alan Oscroft owns shares of Aviva. The Motley Fool UK has recommended GlaxoSmithKline and National Grid. 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.